Bargains galore as house prices plunge

Hi guys,

In all this doom and gloom its good every now and again to step back and see the upside for the investment minded. The SMH today published this article:

http://www.smh.com.au/articles/2005/03/26/1111692684868.html

It starts:

Sydney house hunters looking for quality properties have never been so spoilt for choice.

A report by Home Price Guide exclusively for The Sun-Herald reveals the price of hundreds of properties across Sydney on sale since before September have dropped by as much as 40 per cent.

In Dulwich Hill, a three-bedroom terrace was first listed for sale last May for $980,000. Now it's a bargain buy for $580,000.

In Double Bay, a luxury apartment on Carlotta Road first listed in March 2003 for $2.79 million is for sale for $1.95 million - a fall of $840,000.

In Hunters Hill, Ellie and Kevin Allen's Euthella Avenue home is for sale for $1.15 million - $800,000 less than it was first listed last June.

Ms Allen is certain her three-bedroom house has all the right ingredients: it is close to the city and the ferry, and has water views. But like many vendors, she has been left wondering why the house has not sold.

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Food for thought, or just the media trying to stimulate the market?

Cheers,
Michael.

It's partly reflecting what is happening in the market, but exaggerated as usual by the media.

I have noticed falls of around 15% since the peak where I live.

When the market falls, the luxury market is usually the one that falls the hardest.

There is likely to be plenty more negative stories thsi year in the media.

Cheers,

In Wahroonga , the market seemed to drop about 10 % last year, but in our immediate vacinity , there don't appear to be any fire sales occuring at this stage.

One house that sold near the peak at around 1 mill just sold for 50 K less which is probably better than I expected , though it had been on the market since before Christmas. Buyers are being chosey.

See Change

Personally, I think it's just beginning. Areas that I'm looking at in Sydney (Neutral Bay and Parramatta) have fallen at least 10% - 15%. Interest rates have only just started to come up, and we're at peak economic performance. I can't tell whether there'll be a full-blown crash, but in the next 2-3 years as the economy slows and interest rates come up further, you'll have a certain %age of the population (especially investors who over-extended) hitting the wall. That's the market we want, right?

I'm still waiting for the correction to hit Adelaide. I'm on the southern beaches and things are taking longer to sell but haven't noticed a drop in prices, YET.

Still waiting ....

Maybe later this year.

Cheers
quoll

I also think its just the beginning. There's a lot worse to come in Sydney, particularly if rates continue to inch upwards. The market is already holding its breath and waiting for an indication of what the future holds. Any sign of upward movement of rates or poor economic performance might trigger a downward spiral.

Time will tell, but probably interesting times ahead.

Cheers,
Michael.

But property should be a long term plan, right? Buying in, say 2006 or 2007 instead of 2005 isn't a big deal as long as the price is right and you can hold onto the properties long term. (Speaking as a buy and holder here.)

I'm REALLY looking forward to the next 2-3 years. I see property (especially in Sydney) dropping steadily. I'm going to cash up for the next year or two and look at properties.

alexlee said:

But property should be a long term plan, right? Buying in, say 2006 or 2007 instead of 2005 isn't a big deal as long as the price is right and you can hold onto the properties long term. (Speaking as a buy and holder here.)

I'm REALLY looking forward to the next 2-3 years. I see property (especially in Sydney) dropping steadily. I'm going to cash up for the next year or two and look at properties.

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Agree 100%!! I'm a buy and holder, just bought my PPOR in 2000 and have almost paid it off. Got the equity sitting there and will take out an LOC soon to lock it in before it eeks away too far. Am then looking to watch the market for the next couple of years and pick the eyes out of it as it turns and bottoms. Then as it turns up again, use the growing equity to fund a more ramped up purchasing schedule.

Not mensa, but a simple plan for a little guy...

Time will tell whether I execute it as planned and whether it pays off as hoped.

Cheers,
Michael.

As I have expected, the house prices in Sydney has now begun to drop, as part of the usual property cycle, being in its Slump Phase stage.

I do not rule out that the house prices in Brisbane, Goldcoast, Melbourne property markets ( but not in the Perth property market) will follow soon in the not so distant future.

From my own research, house prices in the Perth property market has continued to rise though at a slower rate than before but such a heavy fall in the Sydney property market is not expected to be repeated in the Perth property market due to the different nature of the property cycle in these different property markets and also based on past 30 years of historical trends occuring in the Perth property market. Morever, the Perth property market did not enjoy as high, a house price increase surge as its Eastern States' counterparts during the last boom.

regards,
Kenneth KOH

alexlee said:

But property should be a long term plan, right? Buying in, say 2006 or 2007 instead of 2005 isn't a big deal as long as the price is right and you can hold onto the properties long term. (Speaking as a buy and holder here.)

I'm REALLY looking forward to the next 2-3 years. I see property (especially in Sydney) dropping steadily. I'm going to cash up for the next year or two and look at properties.

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Depends on your plan . If you can buy and sell 18 months later with a 50 - 100 ( or greater )% profit , what's wrong with that.

Not everyone subscribes to the " there's something wrong mentally wrong with you if you sell a property " line. Having said that , my next property will probably be something I'm buying with a view to a long term buy and hold.


See Change

Of course, I have no problems with making 50 or 100% on my money in a year! You can bet that when the next boom hits I'll be standing in line at the showroom buying apartments off the plan! But the main part of my portfolio will always be buy and holds. Personal perference, I know. At the same time, though, I think most of us (myself included) want to DO more deals, and sometimes we end up buying (or selling) when the best thing would have been to stay put.

I'm trying very hard to sit on my hands and not do anything at the moment....

alexlee said:

Of course, I have no problems with making 50 or 100% on my money in a year! You can bet that when the next boom hits I'll be standing in line at the showroom buying apartments off the plan!

I'm trying very hard to sit on my hands and not do anything at the moment....

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Dear AlexLee,

I try to be a bit "cheeky" here by challenging your a/m views and statement:-

1. I do not wait for the "boom time" to come. As a pro-active property investor, I am able to achieve more than 100% cash-to-cash returns within a 12 months period based on 80% loan leverage, buying vacant land and build a house on it each time in the Perth property market even at this stage of the property cycle, irrespective of the seasons. I try to learn to stay productive and be as fruitful as I could, both during the " in-seasons" and "out-of- season" investing periods.

2. My third and fourth houses are presently under construction now and will be due completion in May-June 2005 and August-September 2005 period respectively whereby I can expect more than A$100,000 worth of immediate house equity available once the houses are completed -- and enjoy the "Developer's profit margin" for my own property investment, which I will further re-invest again later this year, to buy more vacant lands and build more houses again.

3. In the meantime, while the third and foruth houses are being completed, the values of my first 2 completed houses keep increasing and create more house equity for me, as revealed by the lates tbank valuation outcomes.

4. Funny though that you prefer to invest in "apartment units" instead of landed houses as Land Appreciates, Building Depreciates" and when there are little land contents in apartment units? No doubt you do get some good price discount and stamp duties saving for your off-the-plan unit investing but know the risks involved in using this investing approach.

5. Time is MONEY!. Doing nothing now passively is actively letting the current available investment opportunities slip past you and not wanting to further exploit these investing opportunities to create more wealth for yourself and not making the hay while the sun still shines. TIME, once's lost is gone forever and you may not be able to recover it fully subsequently.

Cheers + with regards,
Kenneth KOH

Hi, Kenneth,
I certainly agree with you that there is money to be made in any market, and it's great that you are making great money using your plan.

I guess I'm what you call a lazy investor. I want the market to do the work for me, in a way. I'm in a special situation in that I'm working overseas so I can't be in Oz looking for deals. So I have to stick with less profitable property investments (since I'm not willing / unable to put more time into it.)

I make more money overseas (job-wise) so I'm going to stay overseas for the time being. I haven't managed to make that final mental step of 'stuff the job because I can be rich just doing property!' Plus I'm still relatively young (28) so I honestly think I'll have lots of opportunities in the coming cycles.

As for types of property, I'm starting to lean more towards buying houses instead of units or townhouses. I just think that apartments are easier to flip off the plan than established houses in a hot market, and that's something I'll be doing on the side when the next boom hits.
Alex

Alex,

Our plans and approaches are more aligned than I first thought. I'm one of the lazy investor types who likes to leverage other people's time as well as other people's money. Its all and good to declare 100% returns on a $20K down investment, but for me that's a helluva lot of work for just $20K pre-tax.

I'd like to buy about a house a year with good growth potential and split my investments across multiple platforms, not just property. I'm not in to flips or wraps or renos or any other quick approach, all too much like hard work. I'm off to Steve Navra's course in May and am hoping his structuring approach can leverage my lazy dollars and recoup some of my lost tax dollars. If I can get my lazy equity working several ways to build wealth then I'm probably a step or two ahead of the mob. And, that's enough to allow me to retire very comfortably in 5-10 years time. And, THAT is a plan I certainly like the sounds of.

Cheers,
Michael.

I'm in Brisbane, and talked to some RE people this morning, the market here is
levelling out they thought, but i dont think there is any panic selling here
that I've noticed anyhow. Different agents have different opinions ..
If we have another rate rise plus higher oil prices, .....well.

alexlee said:

I guess I'm what you call a lazy investor. I want the market to do the work for me, in a way. I'm in a special situation in that I'm working overseas so I can't be in Oz looking for deals. So I have to stick with less profitable property investments (since I'm not willing / unable to put more time into it.)

Alex

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Being based OS isn't a limit unless you want it to be. One of the more successfull " wheelers and dealers " on the forum is based overseas .

See Change

MichaelWhyte said:

Alex,

I'm one of the lazy investor types who likes to leverage other people's time as well as other people's money. Its all and good to declare 100% returns on a $20K down investment, but for me that's a helluva lot of work for just $20K pre-tax.

Cheers,
Michael.

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Dear Michael,

1. Not if the Cash-to-cash returns is more than 240% within a single 12 months period and all tax-free. And that really all one has to do, is to decide to invest, have the investment properly financed , get a reliable builder to build the house and project-manage it for you and all you really do is sit back or go travelling around for your holidays (and go visiting your house under construction if you have the time at your own conveninece if you choose to do so) and simple waiting for the house construction to complete to realise the immediate capital gain and newly found house equity upon the house completion.

2. To me, successful property investing is in fact, really a " Get-Rich-Slow" game, rather than a "Get-Rich-Quick" game.

3. Thanks

Cheers + Regards,
Kenneth KOH

Kenneth,

Fair cop gov'ner.

Sounds like your on to a lucrative plan and are executing well, good work! My plan is to leverage to the tune of around $2M and then let it return me 10% or so pa. If I can set the structure up correctly I can minimise the taxable component and keep most of those returns.

I've got a paltry $500K or so equity at the moment, but good cash flow from incomes in the $200K pa mark. So, servicability is not a big issue and I can get a LOC for around $400K which I can put down as deposit on loans for a mix of property and shares.

Each to their own, but if I can double my net worth every 5 years then I can turn my $500K into $2M in 10 years which can then fund a comfortable retirement. Its a simple broad brush plan but I'll fill in the details in the next few months and post it on the forum for the aficionados to tear apart for me...

Cheers,
Michael.

Kennethkohsg said:

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Dear Michael,

1. Not if the Cash-to-cash returns is more than 240% within a single 12 months period and all tax-free. And that really all one has to do, is to decide to invest, have the investment properly financed , get a reliable builder to build the house and project-manage it for you and all you really do is sit back or go travelling around for your holidays (and go visiting your house under construction if you have the time at your own conveninece if you choose to do so) and simple waiting for the house construction to complete to realise the immediate capital gain and newly found house equity upon the house completion.

2. To me, successful property investing is in fact, really a " Get-Rich-Slow" game, rather than a "Get-Rich-Quick" game.

3. Thanks

Cheers + Regards,
Kenneth KOH

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Kenneth

Be aware that while the property market is ok , a property will normally sell for more that it's land and building costs BUT when the market is not so hot , the land and building costs will often be more than what you can sell for.

See Change

Seachange
Kenneth is not alone in his way of investinging and the tax benefits on depreciation etc are quite good.
The same theory of when its hot can also apply to renos, but with new developements IMHO it requires a lot less work and time.
You need to pick your arears but when you do the $$ are very acceptable.

Cheers