1million in Equity!

[Pete]

Can somebody give me an explaination as to why everybody is so enthusiastic about having debt (even good debt) - I may have misread but I am a little lost?

I think, Peter, due to our ignorance. The only way must of us know how to profit from real estate investing is by taking on debt and gaining from the leveraged "buy and hold" portfolio.

I understand a bolder, lucrative approach is to undertake developments where, really, no equity need be put in and potentially millions can be made in one deal, over a period of say a year or two. Such a strategy is uncharted territory and a little scary for some.

What do you think?

regards,

 

[Rixter]

Peter has waaaay more skew than me.

Now the "Skewers" are coming out!

 

[Andrew_A]

Having good debt you still had the capacity to service was a kicker of a strategy for the German hyper inflation of the 1920's. It hasn't been too shabby a strategy over the last 30+ years either. Making sure I have a robust income stream is my focus at the moment, debt isn't my primary concern.

It would be excellent to have our assets debt free and diversified to every corner of the globe... but... I know I'm not there yet.

I heard Robert Prechter mention this week he thinks there will be deflation for the U.S when some credit bubbles end, I don't even know how that all works but thats a scenario to consider regarding debt potentially. You need to look at Japan recently for lessons in this regard. Just think for a moment what would happen to Australia if we experienced a Japanese style deflation.

My meagre understanding of how the house of cards works is that severe inflation is more probable than deflation but I don't know.

 

[MichaelW]

Can somebody give me an explaination as to why everybody is so enthusiastic about having debt (even good debt) - I may have misread but I am a little lost?

Peter,

I thought I sounded just the right note of caution with regards to leverage :

Of course, leverage can enhance your results, but you need to know when leverage is an appropriate tool to employ and when caution is a more appropriate route.

I agree that there is a time and place for leverage and was cautioning against employing it without first assessing its appropriateness for current market conditions.

Cheers,
Michael.

 

[coopranos]

Can somebody give me an explaination as to why everybody is so enthusiastic about having debt (even good debt) - I may have misread but I am a little lost?

Peter: Interesting you spend a fair chunk of your book espousing the benefits of using other peoples money, and now you make a comment like this?
Dont get me wrong, I very much enjoyed your book (the 2nd one, havent read the other one), but it seems a touch rich to now indicate people should not want debt...

I guess people view their debt against property as a good thing because it means their portfolio is larger. If good property can grow at 10% per annum on average over the long term (again something you praise in your book), the more highly you are leveraged the more equity you are building.

Definitely there is a time when you look at things and work out whether it is worthwhile selling some assets and paying down some debt, but while you are building a good asset base, the majority of us on average incomes (or below!) using a buy and hold strategy (the strategy every single guru praises as the safest, easiest, and guaranteed strategy), there is no option but to take on more debt.

 

[lizzie]

i think peter was getting at, was that he wanted people to pause and question what is the purpose behind the debt they were amassing, and that due diligance was being done to ensure the value of the property would increase far above the rate at which the debt is increasing ... rather than just debt for debt sake to buy more properties (or whatever) without a plan.

did i get this right?

 

[Nuthead]

i think peter was getting at, was that he wanted people to pause and question what is the purpose behind the debt they were amassing

I agree... I think he is questioning the underlying purpose behind investing in the first place - for most I think (well certainly for me!) it is all about choice to do what you want with the amount of time you have to spend while you're alive.

if the above is true then ultimately property/shares/business are all the same kind of thing... just pick the one with the highest return for your dollar rather than racing to amass the largest amount of debt.

dunno...!

interestingly (although a semi-unrelated point) it seems to me that the people who have built a large amount of wealth in a short space of time have concentrated all their efforts one one investment vehicle - the people who diversify seem to be those who have already amassed an amount of wealth that they believe to be 'substantial' and are trying to protect their assets.

disclaimer: I know amassing debt is one way of generating a passive income

 

[Andrew_A]

i think peter was getting at, was that he wanted people to pause and question what is the purpose behind the debt they were amassing, and that due diligance was being done to ensure the value of the property would increase far above the rate at which the debt is increasing ... rather than just debt for debt sake to buy more properties (or whatever) without a plan.

did i get this right?

Who knows? Perhaps he will clarify that comment.

Actually the more I think about it the thought of deflation is much scarier to me than inflation. Living off equity would be a whole different challenge in that scenario.

I think I will follow my own advice and go and look at what people were doing in Japan after their 1980's party finished.

 

[lizzie]

I agree... I think he is questioning the underlying purpose behind investing in the first place - for most I think (well certainly for me!) it is all about choice to do what you want with the amount of time you have to spend while you're alive.

that too - but i really meant ... what is the purpose of what you have purchased, what you intend to do with it, how does it fit into your $$ goal and how will it increase your net worth? rather than just buying and getting in debt for the sake of buying and getting in debt.

that is the difference between a plan and fumbling along in the dark.

 

[Nuthead]

hahaha! ok cool... I was off on my own tangent

for sure having a defined strategy is definately a valid point... vision and strategic level thinking is not generally regarded as the 'highest' level thinking within businesses for no reason

 

[Mark C]

The first $1 Mil took me 3.5 years (by bank valuations), knowing what I know now I could have done it in less time.

 

[Annie]

Yep, think it took me about that long as well........the next 2.5 mill were a LOT quicker! (a housing boom alongside a resources boom was a gift!!!)
Ann

 

[Chris.R_WA]

Wow Annie and Mark, those 2 short posts are actually very inspiring for me. I have a goal of the 1st mill in under 5 yrs.

Only 6 months in and at 160K so far...so on the right track at least. Got to kick that exponential curve early I reckon

Chris

 

[Dazz]

Took us 5 years to amass 1 MM...and that was assets, not equity. The equity seemed to arrive about 2 years after.

Took us a further 6 years to amass 10 MM, once again assets, not equity. Equity still coming along for the ride.

It sort of snow balls after a while. Should take us a further 7 years (1 yr down) to get to the 100 MM mark, if the pattern continues.

Having fun....it's a good game to play.

 

[Annie]

Couldn't have said it better myself.......it's all good!!!!
Ann

 

[Twitch]

It took me about 14 years from when I left uni to hit $1 million gross assets. I spent way way too long diligently saving and try to reduce debt.

 

[coopranos]

Took us 5 years to amass 1 MM...and that was assets, not equity. The equity seemed to arrive about 2 years after.

Took us a further 6 years to amass 10 MM, once again assets, not equity. Equity still coming along for the ride.

It sort of snow balls after a while. Should take us a further 7 years (1 yr down) to get to the 100 MM mark, if the pattern continues.

Having fun....it's a good game to play.

Hi Dazzling

Just a quick one, what do you mean by assets not equity?
You talking properties fully paid off?

Cheers mate

 

[charttv]

This may be a bit off topic but I know of a school friend who apparently made 1 mill by the age of 22. I understand he made the most of this trading for an investment bank in London in the year 2000. I think he may have been a marketmaker.

He had an extremely high IQ and was an exceptionally talented Chess player and all round top bloke too!

 

[Annie]

Got to think outside the square!
Only got about 1 mil debt at the mo. (38% LVR), so looking at a development in Palm Cove, Cairns (first IP in Cairns- all others in Perth). Still building 2 properties in Tapping, Perth, so the bank won't be pleased (they don't know, yet.........beauty of lies of credit etc.).....but found a great financial girl who is into property & thinks outside THAT particular square- like that particular style! Hopefully, will also reach the 10mil mark in a few years!
That always helps!
Ann

 

[Ajax]

This has been a great thread.

Earlier on there were some comments about not listening to experts who advise contrary to what your own instincts suggest. I am an active sharetrader. I can't tell you how many times some "expert" gives his view on why buying a particular stock is not a good idea only to see the shareprice rise.

Same goes for bow tie wearing property analysts [imo beware of anyone with a PH.D (a non-medical doctor)...they have mostly been brainwashed by academic groupspeak, speak very convincingly and believe their own b.s.]

Bottom line is to to back yourself and your gut instincts (and I accept I do not do this enough)...be very cautious about accepting the advice of so called experts.


Ajax