Speculative Landbanking
- Thread starter JIT
- Start date
I think it's a pretty hard to specify a % of portfolio as the real issue is cashflow.
Land has always appreciated more than houses, and afaik still does.
Problem is some land will sit for 10 or 20 yrs before anything happens.
So if your buying, it better be real cheap, preferably a foreclosure or forced sale.
It also need be in a good location, not too far away from general residential and preferably surrounded by it.
Wherever government announces land releases in generally too late, or 20 yrs ahead of time.
Typical case was Bringelly SW of Sydney. they announced 100k people would be living there, which created a rush to buy land.
Everybody was asking "let's get together and buy land"... No chance.
I can buy it cheaper now than what they paid 6-8 yrs ago, without the interest bill.
So you have to go out and do the hard yards finding something that could be rezoned in <10yrs and still close to civilisation. And then of course buy it at a darn good price.
Land has always appreciated more than houses, and afaik still does.
Problem is some land will sit for 10 or 20 yrs before anything happens.
So if your buying, it better be real cheap, preferably a foreclosure or forced sale.
It also need be in a good location, not too far away from general residential and preferably surrounded by it.
Wherever government announces land releases in generally too late, or 20 yrs ahead of time.
Typical case was Bringelly SW of Sydney. they announced 100k people would be living there, which created a rush to buy land.
Everybody was asking "let's get together and buy land"... No chance.
I can buy it cheaper now than what they paid 6-8 yrs ago, without the interest bill.
So you have to go out and do the hard yards finding something that could be rezoned in <10yrs and still close to civilisation. And then of course buy it at a darn good price.
We've been "landbanking" of sorts for the last three years almost - our next PPoR block.
Pain in the @rse - kills the cashflow because we borrowed most of the funds from existing equity and new loan.
So, I wouldn't do it for investing purposes - especially with borrowings, and/or unless you are a very cashed up development company and can acquire some farm land for pennies on the dollar.
Having said that; I would buy land for future development purposes, but it would need an income to help fund the "holding cost pain".
Maybe an existing farm of some sort.
There is one up the Peninsula Freeway from us - been a farm as long as I've known, right up to last week there were cows on it.
But last week the cows were gone and we saw the pink survey posts all over the place - about 250acres at a guess.
The problem is that most people here think that the MO to resi real estate investing is to buy with 100%+ loan, pay for LMI and wait for the cows to come home and a fat lady to sing who has'nt been born yet.
Their IP's make losses year after year and sooner or later they will double in price when the next wave eventually brings all boats to shore.
So for most people land of any type, big or small is a no go.
They can't afford it. Sure they are succesful, even the mags interview them, but they don't have the resources or the financial/phsycological stamina to be in this market.
And when they do buy, it's on the speculation from the press or RE mag advertorials.
Which means, unless there's lots of bull market left, there's no cows and anorexic is the new black.
But some of us *know* that wealth comes from equity, cashflow comes from equity and that LMI is a a rip off that enriches the banks.
Of course when so many follow the first paradigm, they are willing to pay a much higher price causing prices to boom, and the second paradigm is on the sidelines as they are out of the market.
The first type also keep buying all the way down, catching falling knifes, axes and other sharp objects on the basis that they can see cows on the horizon, and statistics that say BMI is increasing.
Sure the first method works in a bull market, but anything works in a bull market.
But bull markets don't last forever, so unless your catching most of it you may end up with a leaking raft in a rip.
And generally the second type is still in the market for the first part of the bull market (1-3yrs) as prices take a while to adjust. The second system then automatically removes them from the market as it booms away from them, till the first type is forced to sell and the market once again meets the criteria.
Their IP's make losses year after year and sooner or later they will double in price when the next wave eventually brings all boats to shore.
So for most people land of any type, big or small is a no go.
They can't afford it. Sure they are succesful, even the mags interview them, but they don't have the resources or the financial/phsycological stamina to be in this market.
And when they do buy, it's on the speculation from the press or RE mag advertorials.
Which means, unless there's lots of bull market left, there's no cows and anorexic is the new black.
But some of us *know* that wealth comes from equity, cashflow comes from equity and that LMI is a a rip off that enriches the banks.
Of course when so many follow the first paradigm, they are willing to pay a much higher price causing prices to boom, and the second paradigm is on the sidelines as they are out of the market.
The first type also keep buying all the way down, catching falling knifes, axes and other sharp objects on the basis that they can see cows on the horizon, and statistics that say BMI is increasing.
Sure the first method works in a bull market, but anything works in a bull market.
But bull markets don't last forever, so unless your catching most of it you may end up with a leaking raft in a rip.
And generally the second type is still in the market for the first part of the bull market (1-3yrs) as prices take a while to adjust. The second system then automatically removes them from the market as it booms away from them, till the first type is forced to sell and the market once again meets the criteria.
Thanks for the reply Piston Broke.
My take on landbanking is that unless you can afford to pay cash for the land, and the amount paid is inconsequential to your overall financial position, ie. if you lost it all you wouldn't miss it that much... or, if you do borrow to pay for it, the interest payments are relatively miniscule... then I wouldn't be speculating on such investments.
Bit like spending ''x'' amount on a flashy new car.
My question to you though Piston Broke, given your last post is this...
If you were a young say 23 y/o having just started full-time employment with some savings in the bank, what would you look to invest in first??
Eg...
Financial markets (eg. shares/managed funds/listed property trusts/index funds/ETFs) +/- margin lending/gearing
Speculative landbanking (as landbanking and speculation would appear to go hand in hand!)
Direct commercial property (with 30-40% deposit to enter this market, usually)
Syndicated commercial property/unlisted commercial property trusts
Direct residential property development (eg. 2-4 unit townhouse development)
Direct residential property as a buy and hold, slightly negatively geared/neutrally geared proposition
Positive cash flow direct residential property
Interested in your thoughts...
We all have to start somewhere... where would you start at this age/stage in life, and where did you start yourself?
Also, I would agree that there is a time for the buy/hold resi. strategy, and buying at the later stage of the bull market is a risky proposition, that involves relatively more speculation.
Yes it's ''time in the market'', but I don't think it's wise to disregard ''timing the market'' all together with resi. property investing.
As has been said before, resi. property is a slow moving target... it's not that hard to get the timing right.
And as per the recent poll on the matter, there may come a point in the next ?3-5 years when the fundamentals for resi. property (as a buy/hold proposition) may no longer stack up...
My take on landbanking is that unless you can afford to pay cash for the land, and the amount paid is inconsequential to your overall financial position, ie. if you lost it all you wouldn't miss it that much... or, if you do borrow to pay for it, the interest payments are relatively miniscule... then I wouldn't be speculating on such investments.
Bit like spending ''x'' amount on a flashy new car.
My question to you though Piston Broke, given your last post is this...
If you were a young say 23 y/o having just started full-time employment with some savings in the bank, what would you look to invest in first??
Eg...
Financial markets (eg. shares/managed funds/listed property trusts/index funds/ETFs) +/- margin lending/gearing
Speculative landbanking (as landbanking and speculation would appear to go hand in hand!)
Direct commercial property (with 30-40% deposit to enter this market, usually)
Syndicated commercial property/unlisted commercial property trusts
Direct residential property development (eg. 2-4 unit townhouse development)
Direct residential property as a buy and hold, slightly negatively geared/neutrally geared proposition
Positive cash flow direct residential property
Interested in your thoughts...
We all have to start somewhere... where would you start at this age/stage in life, and where did you start yourself?
Also, I would agree that there is a time for the buy/hold resi. strategy, and buying at the later stage of the bull market is a risky proposition, that involves relatively more speculation.
Yes it's ''time in the market'', but I don't think it's wise to disregard ''timing the market'' all together with resi. property investing.
As has been said before, resi. property is a slow moving target... it's not that hard to get the timing right.
And as per the recent poll on the matter, there may come a point in the next ?3-5 years when the fundamentals for resi. property (as a buy/hold proposition) may no longer stack up...
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JIT, that a tough question that can only be answered in hindsight.
-If you buy land, it has always appreciated more than houses or units over the long term. But you have no income.
-If you buy houses and rent, you can pay down principle and make it CF+ fast instead of paying interest.
Either way you end up in a pretty good position after 15-20yrs.
Of course many times have I cursed those overgrown weeds for bleeding me dry year after year even though they are sitting there at a total lvr of ~15%.
But when and if it happens, then all xmases come at once and you forget the pain.
Would I do it again? Dunno.
What I do know is that I would do one or the other or a combination of both.
If I liked my job, were good at it and did'nt think I'd be unemployed, then I
see nothing wrong with buying a decent place in a better area and saving like hell to get it CF+ for the next one.
After a few years eventually the price of land will go through a slump, and being cashed (or equitied) up will give you a chance to move with a mininmal of cashflow outlay.
The big problem is where to buy? How much to pay?
And an almost sure thing now (rented house) is always better than a "some day will happen" pie in the sky, which it cold turn out to be.
Let me give my guiding investment principles (have some food API bottom trawlers!):
1. All debt is bad if it costs me to keep it
2. An investment earns, a liability costs.
3. Any liability should be turned into an investment asap.
3a. A future investment purchased as a liability should be ideally be funded by other investments, and preferably P&I loans.
4. If it is'nt CF+, then make it!
5. If you can't make it CF+ quickly, the market is too hot or you dont yet have enough $$$.
6. LMI is bad, and means your LVR is too high.
7. He who want it most, pays the most. He in a hurry always pays too much.
8. He who tells you to hurry usually gets a commission.
9. Equity = Wealth, Equity = Cash, Equity = ability to buy when others are going broke.
Equity is king! Long live Equity!
© Piston Broke
As for financial markets, that's even harder. sure if you bought Westfield 40 yrs ago you would made a mozza, but how many others went broke?
Who is the new Westfield?
And how much stress will the volatility cause?
Do you spend your life gleud to a screen, reading the paper thinking "I made 10%"..."I lost 20%".
Not me, that's for sure.
And imo trusts are setup, and there to feed someone else. Usually the managing corp that set them up.
and I've only once had a JV or partnership in investing.
Looks like I'm a "direct" person.
-If you buy land, it has always appreciated more than houses or units over the long term. But you have no income.
-If you buy houses and rent, you can pay down principle and make it CF+ fast instead of paying interest.
Either way you end up in a pretty good position after 15-20yrs.
Of course many times have I cursed those overgrown weeds for bleeding me dry year after year even though they are sitting there at a total lvr of ~15%.
But when and if it happens, then all xmases come at once and you forget the pain.
Would I do it again? Dunno.
What I do know is that I would do one or the other or a combination of both.
If I liked my job, were good at it and did'nt think I'd be unemployed, then I
see nothing wrong with buying a decent place in a better area and saving like hell to get it CF+ for the next one.
After a few years eventually the price of land will go through a slump, and being cashed (or equitied) up will give you a chance to move with a mininmal of cashflow outlay.
The big problem is where to buy? How much to pay?
And an almost sure thing now (rented house) is always better than a "some day will happen" pie in the sky, which it cold turn out to be.
Let me give my guiding investment principles (have some food API bottom trawlers!):
1. All debt is bad if it costs me to keep it
2. An investment earns, a liability costs.
3. Any liability should be turned into an investment asap.
3a. A future investment purchased as a liability should be ideally be funded by other investments, and preferably P&I loans.
4. If it is'nt CF+, then make it!
5. If you can't make it CF+ quickly, the market is too hot or you dont yet have enough $$$.
6. LMI is bad, and means your LVR is too high.
7. He who want it most, pays the most. He in a hurry always pays too much.
8. He who tells you to hurry usually gets a commission.
9. Equity = Wealth, Equity = Cash, Equity = ability to buy when others are going broke.
Equity is king! Long live Equity!
© Piston Broke
As for financial markets, that's even harder. sure if you bought Westfield 40 yrs ago you would made a mozza, but how many others went broke?
Who is the new Westfield?
And how much stress will the volatility cause?
Do you spend your life gleud to a screen, reading the paper thinking "I made 10%"..."I lost 20%".
Not me, that's for sure.
And imo trusts are setup, and there to feed someone else. Usually the managing corp that set them up.
and I've only once had a JV or partnership in investing.
Looks like I'm a "direct" person.
Yes, and as you've said before, unless it's dirt cheap, most of us who are just starting out in this investing caper can't afford this.
Yes, I agree. I've only ever rented (and lived with my parents prior to this), so all my property debt has been deductible and subsidised by the tenant, tax benefits etc... and debt can of course be reduced using 100% offset accounts these days.
Well then I think that most of us on this forum are doing precisely that... it's just that some people's appetite for risk and speculation (and ultimately we are all just speculating on future capital growth) are different. Just as you are/have speculated with landbanking, though I'd argue that this is really speculating!
Yes, I fit that boat, but chose to buy several rental properties vs 1 X PPOR, moved into one or two of the IP's briefly then moved out
, and put the extra $ into the 100% offset accounts.But I know many people in a similar situation to me who chose to just buy the decent PPOR, pay it down, upgrade CGT free etc... equally valid, but I think my approach is better
.Absolutely.
Let me give my guiding investment principles (have some food API bottom trawlers!):
1. All debt is bad if it costs me to keep it
2. An investment earns, a liability costs.
3. Any liability should be turned into an investment asap.
3a. A future investment purchased as a liability should be ideally be funded by other investments, and preferably P&I loans.
4. If it is'nt CF+, then make it!
5. If you can't make it CF+ quickly, the market is too hot or you dont yet have enough $$$.
6. LMI is bad, and means your LVR is too high.
7. He who want it most, pays the most. He in a hurry always pays too much.
8. He who tells you to hurry usually gets a commission.
9. Equity = Wealth, Equity = Cash, Equity = ability to buy when others are going broke.
Equity is king! Long live Equity!
© Piston Broke
Nice work, sounds like something BayView would write, except instead of Equity/Equity/Equity, he'd say Cash Flow/Cash Flow/Cash Flow (just teasing BV)
!Equity is great... but presumably you don't like it so much that you are living off equity... are you... ???
If not, just curious then, how do you generate most of your ''passive income'' that gives you financial freedom... is it from rent off residential property?
I'd disagree with point 6 though, particularly for those just starting out. By the time I saved up for a 20% deposit prices would have gone up 40% (and in the areas I purchased in the last few years... they did!).
You can buy at 97% LVR, at the right time, and it can become 80% LVR due to price rises and with no debt repayment.... pick the wrong time of course and the opposite is possible!
It's a matter of your appetite for risk and speculative views on future capital growth.
Agreed.
You are, and so are most of us on this forum, we have a lot in common, so it perplexes me to see some of the heated banter that goes on with you and others here!
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Great topic JIT!
As usual, JIT has come up with yet another thought provoking thread! Very enjoyable to read. Also enjoyed reading PB's approach to investing and JIT's response.
There are so many approaches to investing in property. I guess that is what keeps it so interesting!
I'm staying tuned to read more responses!
Regards Jason.
As usual, JIT has come up with yet another thought provoking thread! Very enjoyable to read. Also enjoyed reading PB's approach to investing and JIT's response.
There are so many approaches to investing in property. I guess that is what keeps it so interesting!
I'm staying tuned to read more responses!
Regards Jason.
Excellent post PB.
Add to this;
10. cashflow is king.
EDIT:
HA! I just read back over the thread a bit more after posting and saw your remark, JIT.
You know too well methinks.
JIT, that a tough question that can only be answered in hindsight.
-If you buy land, it has always appreciated more than houses or units over the long term. But you have no income.
-If you buy houses and rent, you can pay down principle and make it CF+ fast instead of paying interest.
Either way you end up in a pretty good position after 15-20yrs.
Of course many times have I cursed those overgrown weeds for bleeding me dry year after year even though they are sitting there at a total lvr of ~15%.
But when and if it happens, then all xmases come at once and you forget the pain.
Would I do it again? Dunno.
What I do know is that I would do one or the other or a combination of both.
If I liked my job, were good at it and did'nt think I'd be unemployed, then I
see nothing wrong with buying a decent place in a better area and saving like hell to get it CF+ for the next one.
After a few years eventually the price of land will go through a slump, and being cashed (or equitied) up will give you a chance to move with a mininmal of cashflow outlay.
The big problem is where to buy? How much to pay?
And an almost sure thing now (rented house) is always better than a "some day will happen" pie in the sky, which it cold turn out to be.
Let me give my guiding investment principles (have some food API bottom trawlers!):
1. All debt is bad if it costs me to keep it
2. An investment earns, a liability costs.
3. Any liability should be turned into an investment asap.
3a. A future investment purchased as a liability should be ideally be funded by other investments, and preferably P&I loans.
4. If it is'nt CF+, then make it!
5. If you can't make it CF+ quickly, the market is too hot or you dont yet have enough $$$.
6. LMI is bad, and means your LVR is too high.
7. He who want it most, pays the most. He in a hurry always pays too much.
8. He who tells you to hurry usually gets a commission.
9. Equity = Wealth, Equity = Cash, Equity = ability to buy when others are going broke.
Equity is king! Long live Equity!
© Piston Broke
As for financial markets, that's even harder. sure if you bought Westfield 40 yrs ago you would made a mozza, but how many others went broke?
Who is the new Westfield?
And how much stress will the volatility cause?
Do you spend your life gleud to a screen, reading the paper thinking "I made 10%"..."I lost 20%".
Not me, that's for sure.
And imo trusts are setup, and there to feed someone else. Usually the managing corp that set them up.
and I've only once had a JV or partnership in investing.
Looks like I'm a "direct" person.
Top post PB. Some of the best common sense advice I've seen on this forum.
Agree 110%
RC
5. If you can't make it CF+ quickly, the market is too hot or you dont yet have enough $$$.
Now you can wait for it to come back to you, or go and find it. There's plenty in my neighbourhood.
Thnx Bayview, we agree, I always seen the cashflow coming from equity.
Getting out the nitty gritty dirty ugly detail like the guy cleaning the attic or under the house, holding up some ugly looking dunno what that looks like it's growing teeth and a tail and asking "you said it would be easy, just a bit of dirt..."
I've seen many people come and go with this investing stuff.
They were gonna talk over the world, make 40%+ a year trading fairy futures.
Buy a business and conquer the world, have instant sales, customers, instant billions...instant everything. blah blah blah
While I just plodded along, not making all that much and spending way less, but always increasing my equity and reducing debt year after year.
I also know many who made much more and also spent very little.
My income?
Mainly from businesses I have. I decided to sell them a few years ago, but they keep earning, so i never bothered.
I sold most of my RE portfolio down to pay down debt around 3 years ago and be cashed up for a few developments. I sold 1 IP + ppor for a better ppor a few yrs before that. These are apart of a 15 year plan that is now coming to fruition. One will be about ~12 homes on 100% owned land with a total cost base of <150k (including interest!), but I'm waiting a little longer on this one. It sure feels good to be "paid up".
Another is in the pipeline that I posted about, that has a cost base of ~320k (int incl) for 6-10 homes. And another which can still sit and pay itself.
I will maybe sell some biz interests this fin year which should give me a few years of food on the table, and water is free.
Sure I'll leveraged up again soon, it should be ~65% and fairly neutral. Once that's done I re-assess what the next step is. Sell, keep, build, reduce LVR or whatever. I'm not interested in owning the world, 10-15 fully owned IPs will do just fine, I can live modestly on that lol.
As they say it's like flying a plane, lots of boredom with short periods of everything happening way too fast.
JIT that ~100k would've bought 4 IPs at the time (20% dep each) now selling around 230-250k. So the CG would've been ~800k. and I could've re leveraged and bought more. I'm now expecting a CG of ~1.5, ~65% LVR on an asset of ~4mil.
So the big question is could I have accumulated 4mil @ 65% LVR buying houses in the same time?
Dunno, maybe yes...maybe no. Keep in mind that if they had a CG of 7% yr those houses would be now worth ~3mil instead of 1mil, so imo the generic 7% rule is a load of BS. Post it at your own peril lol.
And yes, there are ways I could've done it better, cause i now am wiser.
I could've also saved many thousands I spent on seminars and "pie in the sky" programs.
So for those who think I have interest in talking down the market, think again. I have much more interest than just about all of you in a RE boom.
I'm just not deaf & blind. You have to be attuned to what's happeing in your IP area.
"Know when to hold'em and when to fold'em"
And now for my seminar tour and new book launch! Hurry tickets selling fast!
Join the Piston Broke Club! Just give me your money and I'll do the same as that long haired lout did with the bread, wine & fish ie eat it.
Great!
Now you can wait for it to come back to you, or go and find it. There's plenty in my neighbourhood.
Thnx Bayview, we agree, I always seen the cashflow coming from equity.
That's what I thought the forum is for lol
Getting out the nitty gritty dirty ugly detail like the guy cleaning the attic or under the house, holding up some ugly looking dunno what that looks like it's growing teeth and a tail and asking "you said it would be easy, just a bit of dirt..."I've seen many people come and go with this investing stuff.
They were gonna talk over the world, make 40%+ a year trading fairy futures.
Buy a business and conquer the world, have instant sales, customers, instant billions...instant everything. blah blah blah
While I just plodded along, not making all that much and spending way less, but always increasing my equity and reducing debt year after year.
I also know many who made much more and also spent very little.
My income?
Mainly from businesses I have. I decided to sell them a few years ago, but they keep earning, so i never bothered.
I sold most of my RE portfolio down to pay down debt around 3 years ago and be cashed up for a few developments. I sold 1 IP + ppor for a better ppor a few yrs before that. These are apart of a 15 year plan that is now coming to fruition. One will be about ~12 homes on 100% owned land with a total cost base of <150k (including interest!), but I'm waiting a little longer on this one. It sure feels good to be "paid up".
Another is in the pipeline that I posted about, that has a cost base of ~320k (int incl) for 6-10 homes. And another which can still sit and pay itself.
I will maybe sell some biz interests this fin year which should give me a few years of food on the table, and water is free.
Sure I'll leveraged up again soon, it should be ~65% and fairly neutral. Once that's done I re-assess what the next step is. Sell, keep, build, reduce LVR or whatever. I'm not interested in owning the world, 10-15 fully owned IPs will do just fine, I can live modestly on that lol.
As they say it's like flying a plane, lots of boredom with short periods of everything happening way too fast.
JIT that ~100k would've bought 4 IPs at the time (20% dep each) now selling around 230-250k. So the CG would've been ~800k. and I could've re leveraged and bought more. I'm now expecting a CG of ~1.5, ~65% LVR on an asset of ~4mil.
So the big question is could I have accumulated 4mil @ 65% LVR buying houses in the same time?
Dunno, maybe yes...maybe no. Keep in mind that if they had a CG of 7% yr those houses would be now worth ~3mil instead of 1mil, so imo the generic 7% rule is a load of BS. Post it at your own peril lol.
And yes, there are ways I could've done it better, cause i now am wiser.
I could've also saved many thousands I spent on seminars and "pie in the sky" programs.
So for those who think I have interest in talking down the market, think again. I have much more interest than just about all of you in a RE boom.
I'm just not deaf & blind. You have to be attuned to what's happeing in your IP area.
"Know when to hold'em and when to fold'em"
And now for my seminar tour and new book launch! Hurry tickets selling fast!
Join the Piston Broke Club! Just give me your money and I'll do the same as that long haired lout did with the bread, wine & fish ie eat it.
Sorry, I meant I disagreed with point number 6 (not 5), re. ''LMI is bad for you''.
I'm not following this, what do you mean ''come back to you''? Go and find what?
Thanks for the clarifications.
When you say 15 year plan... was this plan dependent on a speculative re-zoning (or higher use) of rural/semi-rural land... that paid off?
Honest question... please don't take offence.
Or maybe it was a done deal like what you mentioned before:
http://www.realestate.com.au/cgi-bi...r=&cc=&c=93969448&s=nsw&snf=rbs&tm=1242812431
Only, maybe you got it dirt cheap instead of 40% overpriced??
That would give you a good passive retirement income stream, presumably all residential though... not that there's anything fundamentally wrong with that...
So instead of paying 150k for 4 IPs (ie. land with house on top), you bought a large land (or two or more), presumably at the city fringe, with presumbably little/no income coming in, as part of a really long, long (and highly speculative) buy and hold property strategy... that is about to finally pay off...
Correct me if my presumption is wrong...
Out of curiousity (and again, you might not like this question!)... did you inherit any of this land, or has it been in your family for decades... ?
I'm not following this, what do you mean ''come back to you''? Go and find what?
Thanks for the clarifications.
When you say 15 year plan... was this plan dependent on a speculative re-zoning (or higher use) of rural/semi-rural land... that paid off?
Honest question... please don't take offence.
Or maybe it was a done deal like what you mentioned before:
http://www.realestate.com.au/cgi-bi...r=&cc=&c=93969448&s=nsw&snf=rbs&tm=1242812431
Only, maybe you got it dirt cheap instead of 40% overpriced??
That would give you a good passive retirement income stream, presumably all residential though... not that there's anything fundamentally wrong with that...
So instead of paying 150k for 4 IPs (ie. land with house on top), you bought a large land (or two or more), presumably at the city fringe, with presumbably little/no income coming in, as part of a really long, long (and highly speculative) buy and hold property strategy... that is about to finally pay off...
Correct me if my presumption is wrong...
Out of curiousity (and again, you might not like this question!)... did you inherit any of this land, or has it been in your family for decades... ?
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Hi JIT
Your heading is Speculative Landbanking
The operative word is 'speculative'.
Speculation is quite different to investing, as it relies on the premise that someone, at some time in the future, will want the land sufficiently to pay more, perhaps considerably more, than you have paid for it now.
A speculative buyer is simply an equity investor. Rarely would a speculator buy eg farm land, and operate it as a farm, but hope that it gets rezoned or that there evolves a higher use for the land - residential, industrial, or whatever
Obviously, an investor can also be a speculator eg buying a house with a larger block and hope that the municipal planning scheme will allow subdivision, or that the property could be rezoned or allowed for some alternative use
But generally, an investor buys for different reasons than a speculator
It is the working farms and market gardens, whose owners have earned their living from the land, which eventually become encapsulated by the suburbs and thus become very valuable 'overnight'.
When we bought in Wonga Park all those years ago, Herbie, who had been born in the house on the corner, said that he had made a decision that when his council rates reached $3,000 per annum that he would sell the land (about 40 acres).
$3,000 for Herbie took a lot of earning, but while the land could still earn something for him, he would keep it. Once it started to cost him money, he would sell it.
Herbie made good money selling his land, but nothing like the value of the land today. His family had owned, and farmed, the land since the Ballot in 1898, so there was nothing speculative about it for them, but the developer which bought the first parcel did speculate and it took them nearly 3 years to sell 11 blocks.
In a mild form we are all speculating that the properties will grow in value over time, but in the meantime most investors also look at the rent return and the capacity of the property to eventually pay it's own expenses and ultimately pay it's own capital cost.
So yes, I invest and thus, I speculate but no, that is not my prime focus. I have now reached the stage where I will probably not buy any more but redevelop what I already have and hold for the long term, so the speculation will take another form, that of yield rather than capital growth or opportunity for further development.
Cheers
Kristine
Your heading is Speculative Landbanking
The operative word is 'speculative'.
Speculation is quite different to investing, as it relies on the premise that someone, at some time in the future, will want the land sufficiently to pay more, perhaps considerably more, than you have paid for it now.
A speculative buyer is simply an equity investor. Rarely would a speculator buy eg farm land, and operate it as a farm, but hope that it gets rezoned or that there evolves a higher use for the land - residential, industrial, or whatever
Obviously, an investor can also be a speculator eg buying a house with a larger block and hope that the municipal planning scheme will allow subdivision, or that the property could be rezoned or allowed for some alternative use
But generally, an investor buys for different reasons than a speculator
It is the working farms and market gardens, whose owners have earned their living from the land, which eventually become encapsulated by the suburbs and thus become very valuable 'overnight'.
When we bought in Wonga Park all those years ago, Herbie, who had been born in the house on the corner, said that he had made a decision that when his council rates reached $3,000 per annum that he would sell the land (about 40 acres).
$3,000 for Herbie took a lot of earning, but while the land could still earn something for him, he would keep it. Once it started to cost him money, he would sell it.
Herbie made good money selling his land, but nothing like the value of the land today. His family had owned, and farmed, the land since the Ballot in 1898, so there was nothing speculative about it for them, but the developer which bought the first parcel did speculate and it took them nearly 3 years to sell 11 blocks.
In a mild form we are all speculating that the properties will grow in value over time, but in the meantime most investors also look at the rent return and the capacity of the property to eventually pay it's own expenses and ultimately pay it's own capital cost.
So yes, I invest and thus, I speculate but no, that is not my prime focus. I have now reached the stage where I will probably not buy any more but redevelop what I already have and hold for the long term, so the speculation will take another form, that of yield rather than capital growth or opportunity for further development.
Cheers
Kristine
Yes, that's what I was suggesting by ''speculative landbanking'' in this case.
But as I mentioned earlier, with residential property and future capital growth, I think we are all speculating in the end, it's just a matter of degree.
Agree, good for Herbie.
Yep, they were probably speculating.
Yes, and in the not so mild form you buy land with nothing on it (maybe a shed, maybe a farm?) and with little if any income coming through... etc...
Sort of.... my PPOR is on 20 acres, next to a pleasant village. There's a (remote?) possibility that the govt will decree that local councils must allow subdivision to 5 acres lots some time in the next 30 years... just like they've taken granny flat approval out of the hands of our (anti development) council.
If it comes off great, if it doesn't who cares - it's costing me nothing & it wasn't the reason why bought. There's a tiny bit more Blue Sky than living in a 4x2 in suburbia.
Sounds great. Like you said, if it happens great, if not no big deal, and at it's not part of some grand 30 year plan you are relying on and dependent on numerous variables out of your control.
I'm not following this, what do you mean ''come back to you''? Go and find what?
It means wait for your area to slump, or go find the bargains.
Here you can buy a brick house on land for ~250k with enough room for a granny flat that can rent for 280-300 wk, in a reasonable area.
I'm sure Nathan will also tell you there's plenty like that here.
There's always options, but yeah. "It won't happen overnight, but it will happen"...eventually. I gave 10-15 yrs. but it could've been 5-10 more yrs.
But the more people believe the myth of land shortage, the quicker it happens.
Nope, very far from it.
Equity & Cashflow gives you all the options.
Yep!!!!!!, It was purchased in the 90's and there's many reasons for it.
All of which still apply. In our early 20's we're all ready & willing to take on the world...so i did. But I won't deny that in my house we always worked as a group & partnership and that I was helped out in many ways, even though we all had our own projects. If I really got stuck I knew there was plenty support. It was refinanced 3 times and paid off in ~12yrs. Many mistakes, many lessons, much experience.
A couple yrs ago I also fully paid a P&I loan (~12yrs) for a biz I bought.
Oh what a feeling!
As for "long long speculative", is'nt putting money in your managed super till your 65 even longer & more speculative? 45 years in the hands of those finance corps who promise the world and deliver nothing except millionaire executives and staff bonuses for losing peoples money?
I have pretty much no superannuation. I had the choice not to pay it and I took it.
And I was pretty smug about myself (and still am lol) to reckon that I could do better.
In those days the finance corps were sending out commissioned sales people out to the workplaces who were promising things like "In 20 yrs time you will have $1mil in super". Well I now know of nobody who worked for 20 yrs with avg pay and has $1mil in super. Does anyone else here know anyone?
The would actually pay the supervisers a bit of cash (yep, a bribe) so that we could stop work just to talk to a commissioned sales person trying to sell us super & insurance. And most just signed the dotted line seeing $$ signs in there eyes...ignorant suckers.
And just like on this forum, there was no point explaining their ignorance.
The "expert said..." was the reply, and the higher ups were in on it too.
Many times others would tell me about "faster" ways to make money doing this or that, and I did try a few things, but in the end they were just repeating something they heard at a seminar. But this is a game of patience. And I enjoyed my jobs.
And thus my mission to prove them all wrong
JIT you gotta think long term m8, forget getting rich in 5 yrs, give it 15-20yrs.
Time is on your side! Live your life, enjoy your work, spend don't blow your money, and slowly watch your equity grow & multiply.
You want to own the millions, not owe them.
PS do I get paid by the bloody letter here!? geez...
