A story to keep us all inspired

[jahn]

I might be right. I might be wrong. But what I won't be, is doing nothing.
I have a relative who sometimes reminds me that many years ago, waterfront properties in Sydney Harbour were hard to sell, almost give away, because of the concern that we could be invaded by the Japanese. (a small sub did actually get in). Wish I was around then.
Maybe I shouldn't invest in shares or insurance either, because of HIH, Worldcom, etc.

All I can plan for is that barring earthquakes, world economy collapses, wars etc, I can't count on the age pension for the future, and at some stage I need to retire, so;
Due dilligence,
and do what you think is best
jahn
PS
Cad - Agree

 

[L Bernham]

I prefer to consider myself a realist.

I do hear what you're saying though and I need to be careful.

 

[geoffw]

I have been through a loss period in England.

I bought for GBP 50,000 in 1988, it was worth perhaps GBP 40,000 in 1990 when we moved back to Australia.

The mentality about property when we bought was similar to now. It was a boom part of the cycle.

We sold in 1999 (after 9 years of rent not meeting repayments) because it would have cost us GBP 10,000 just to bring it back to rentable standard- it was very good standard when we left in 1990- and that amount would have added GBP 8,000 to the value. We sold for GBP 57,000. The "profit" probably did not even meet our the difference between rent and interest over the years.

I gather I could have sold a lot better if I'd kept it for another year or three.

But I'm OK with what we did.

The bank did not ask us for a "cough up", even though we'd borrowed to 95%.

And the market did not collapse in the long term- it came back, and thrived again.

Japan and Argentina happen, but it's the exception.

Personally, I'd buy now if there was a good "add value" place. But I'd not buy otherwise.

I'm happy to keep the properties I have. They might not gain a lot of value in the next few years- but I'm happy with the value which I've gained now. If I lose some of that value, so be it. It would take quite a big loss to take me back to purchase value.

I think my glass is about 80% full.

 

[L Bernham]

thanks Geoff.
I should add that I only throw these situational examples in to counter the arguement that something can't happen.

my glass is now totally empty, I'm just going to go and fill it up again now. maybe I'll just half fill it.

 

[Les]

G'day L Bernham,

There just seem to be a few people around who arent appreciating that all forms of invesment have risks attached.
Property included

That is a very potent point, LB. In discussions at work, I am hearing all about BBQ's, etc. where people who have NEVER done it before, are suddenly talking about buying Sydney investment properties.

Now, if we were to draw a parallel with the Stockmarket, and "bellboys in lifts giving stock tips" - (what was the answer then?) "The market's too hot - sell all you've got" were (I think) the words used.

I was one who thought Sydney was "at its peak" TWO years ago!! It has defied gravity for so long..... For how much longer ???

And, the last I heard, Sydney was fast approaching the level where wages could no longer support the ever-increasing cost of mortgages - which HAS to have a major effect on the supply/demand curve.

The only things that prevent me from coming straight out and saying "Sydney has reached its peak values - prices will now start dropping" is the comment (from the sharemarket also ) that says "All booms go far higher than they should !!!" And, of course, the fact that Sydney is not just ONE market......

Anyway, thanks for your words of caution - (even though you and I could be proved wrong in the next 6 - 12 months). In any debate, there needs to be two sides to give a fresh outlook to the whole scenario. Where Sydney is concerned, at least, I'm with you (says he, ignoring the "multiple market" comment he made earlier ) Caution is the catchword IMHO,

Regards,

 

[bagg]

This is an interesting debate and a very worthwhile one. This property boom will end, its just when that no-one knows. What will we all be doing when it does?

L Bernham, what are you thinking of doing with your capital gain atm. I recall from previous posts you have an interest in the sharemarket. (ps well done for handling the criticism so well in your posts).

My 2c worth is that property is an excellent "core" investment and that it should be held long term but perhaps a small amount of a property portfolio could be traded. i.e. as market conditions dictate, funds are rotated through positively performing asset classes.

People who prove very good at this end up making the fortunes of the world.

bagg

 

[Bill.L]

Hi all,

Congrats L Bernham on realizing your profit, as you have done what works for you.
There is no doubt that the boom will end at some stage, and with the number of new investors jumping on both you and the bandwagon, makes me realise just how close we are to a market peak.

My plan differs from your approach as we will keep the properties for now, because the conditions are not quite there for the deflationary spiral. I feel that we would have to have much lower interest rates, LARGER percentage price increases, and slowing population growth to go to the extreme boom position.

Your right about inflation and future prices but many people don't wish to see it. However we could return to a higher inflationary scenario and provided you were not over extended on the loan side, the cap gains will be great and increased rents would be good to offset the rising interest rates.

bye

 

[Kevmeister]

You know, my wife is quite cautious and conservative about money. I am probably equally cautious and conservative about money when talking about loans secured to my family's home.

Everyone has different perceptions of risk, and different sensitivities to risk. But I have to admit that, at present, it's quite scary seeing how many investors are in the market, how many people have bought investment properties in a boom, and I have no doubt that the current talk of taxi drivers is property investment.

Not to mention oversupply in the Melbourne apartment market and the beginnings of dropping values in that market. I am simply going to tread very cautiously.

 

[ocean view]

ups & downs..

Kev I agree in the way you have put the argument.

Conservitive.. But,,,

investing in property for example can be very simple. You can get rid of risk simply by purchasing the Best stock. (no matter how bad the situation gets with rates. Besides They all have a counter effect on each other .

In business it is the same. My Grandfather started Investing in the 40's .. He once said to me that he had seen it all. In the early 60's no one had even heard of an investment property portfolio's as no one invested.

He always said "even with down turns & end of peaks
18% interest rates,,they are only hurdles". To avoid hurdles you buy Homes or land that is more sort after then all the others. That way your purchase will always be wanted & will return .

Trends & time has changed so many things in regards to investing. It is nearly a fulltime job trying to find the best stock nowadays AS IT HAS CHANGED so many times due to weather, imagration, transport & a hundred more . But it still can be achieved. For the ones that see the Boom ending well that's true the stats show this but that does not mean you can not still profit. Just give it some thought next time you see a house or land for sale.

One who won't stop buying (providing no eathquakes or national disasters)

Ocean View

 

[crusty]

Why Sell,for the money ?
lock in a LOC at the moment and you have your money and your IP, so you have really cashed in your profit to go and invest in the next booming asset, whatever that may be.

You only sell an asset when you really have to, you get a ridiculos price and you know you can buy that asset back at a reduced price.

eg Kerry Packer and Alan Bond.

Im holding on, i want $13mill for just one of my ips.......


Crusty

 

[L Bernham]

Thanks for the support bagg.

I'm not entirely sure about what to do with my money at the moment. (any ideas?). A limited amount will go into commodities.

Believe it or not, I reckon that property SHOULD be a long term investment and I never had any intention of selling mine.
I have the same philosophy in the stockmarket. I buy to hold through thick and thin. There have been a few times, however when I 'felt' more concerned about holding than not holding and I've found the few sell decisions I've made have been good (ie selling AMP for $19.50). I've also recently sold the CBA shares I've been holding since 1994.
I always seem to sell a bit early, but have rarely been wrong in the long run. Time will tell in the case of my IP.

There are times when you have to be content to just sit out and watch, unless you have the time to spend in finding bargains which there will always be. but that also takes an equal mix of skill and luck.

This could go against the opinional grain again but there's no rule book that says we are ENTITLED to make 5-10+% returns in any investment class.
Theoretically and historically, the value of businesses and land (ie shares and property) rises in close correlation to economic growth (plus inflation which is irrelevant as its all relative) over the long term.
The past 15- 20 years have seen phenomenal nominal (sorry ) returns largely helped along by some periods of very high inflation rates. Brokers and RE agents love this. It means they can use these years NOMINAL growth to project returns into the future so that the ones who believe their story expect similar REAL returns even in those years where inflation is low and the economy isnt growing or heaven forbid, declining.

This is my opinion but I feel that the US is teetering on the edge and thats mainly due to their unsustainable CAD. And unfortunately this will affect Australia. I'm not going into the whole explanation of why as I've just noticed how long this is so I'm guessing I;ve lost most readers attention by now anyway.

 

[ocean view]

lost me?

bernham?

You have lost me,, not with your last post as it did make sense on what you said.

I guess I am lost a little with the attitude you have comming from someone living in the best town to buy real estate at the moment.

There are certain st's in towns that you could not poissibly make less then 30% growth in the next 12 mths. And that's with rate rises & job losses. It's all about education. Learning ways to identify these places.

It may seem easy to raise your arms up ! And call it a day. Because you seem to have seen the signs.
But thats your decision. And to let us know is also a right .

But many of us share an opposite view and I thank the forum to allow one to voice it as well.

cheers ocean

 

[L Bernham]

I am also thankful that the forum allows this discussion of all views involved.

What I have done is right for me and it may not be everyones strategy and thats fine.

I dont understand how anyone can say that "you could not possibly make less then 30% growth in the next 12 mths" anywhere.

If it were so obvious that capital growth would be forthcoming, who would sell? and if you did wouldnt you add the expected growth into the price? You'll find that the places that are expecting a high rate of population growth already have a low yield rental (in other words capital growth expected and already calculated in sell price)
My opinion again but it seems like sellers today are pricing in an awful lot of anticipated capital growth and in the rush to buy and "not miss out" buyers are paying them as they feel they have no choice.

There will be areas that rise in value by 30% over the next year. I dont doubt that for a minute. But if I did a poll on where people thought that was I'd get a different answer from nearly everyone and only a very small minority would be right but all would be expecting it to be them.

A wonderful trait we have as humans is to back ourselves or our team.

 

[ocean view]

berham

Re : last comment, no one is saying that the growth rate will be 30% everywhere. But as you agreed it will be somewhere?

Isn't that the reason we invest , to make a return. It is ones decision of course to inherit that choice.

You even agreed saying ,you do not doubt that some areas would receive that growth.

of course everyone will not always pull the right buy. Well thats maybe due to experience & just plain knowledge. Maybe they just made a wrong choice after having all the right facts? Who knows?

Well I guess it means going back to the drawing board for them

However I agree to the fact that most experienced investors rarely make an error in judgement when it comes down to growth.
I have purchased over 100 homes & if I did not have a 30% return on a purchase for the first 12mths I would of made an error (somewhere). But errors can be avoided if one uses knowledge & experience together.

The point I am trying to make is that we all use this forum to help each other. I guess for me it gives me some satisfaction helping a young couple from somewhere in Perth to invest in something that improves their financial position or an elderly Man able to increase his super through the property game.

Jan swears by it & thats why she has decided to fund this site. I have met her many times & She shares the same feelings at heart as I do .

We are all at different levels in investing and we should acknowledge that through screening what we say on the forum. It might give that couple from perth the wrong idea & I doubt that is Jan's intention.

At the same time it is important to voice your reasons why you do not wish to continue in the purchasing side of property. But try not to be to negative. Better still have another re think, I am sure that growth you picked up over the past 5 years can be made in half that time if you used some constructive thinking on where to buy!

cheers ocean

 

[L Bernham]

It would be the inexperienced investors that I'm more concerned about.
A lot of them buy a book, get some and advice and think they will make easy riches and that just wont happen.
Rarely do we get a boom to the scale we have seen where you could just about buy anything anywhere and you would reap good rewards. My situation is a bit like that as it wasnt any great skill that I used when deciding where to buy.

I have continued to make money in the stock market even through its bear phase but that I can say was through a good amount of research and even some luck. I havent made much though and had I known the markets would suffer such problems I would have stayed out altogether. this is why I feel in the current overheated state of the prop market its best that inexperienced investors sit on the sidelines and wait. They wont miss out as there arent too many countries where the typical wage earner can barely afford to buy a less than standard property. Australia wont be one for much longer either.

As I said, some regions will rise by 10 ,20, 30 or 50%.
However if the average price falls by 30% it means the average loss by the average person is 30% - therefore some would lose more than that to make up for those that do make gains.

Unfortunately everyone sees themself as better than the average (yet 50% of them are below average). I did an interesting IQ test recently where you are asked to predict how you will compare to others.
Not surprisingly approx 98% thought they belonged in a higher category then their results actually showed. I'm embarassed to admit this included me.
When you mix this confidence with investing it can cause big problems.
If a new investor isnt aware of the role that psychology plays in investing as well as all the risks involved, they would be better off not investing at all. I apologise if that ruins a dream but surely its better ruining a dream than ruining someone financially.

You said you gain satisfation from "helping a young couple from somewhere in Perth to invest in something that improves their financial position or an elderly Man able to increase his super through the property game".

Well, I gain satisfaction from being knowing I have saved someone from potentially making one of the worst decisions in their life.

After a similar comment I made in a post y'day it was interesting to see someone from abnamro morgans on Sunrise this morning. When Kochie asked him where to invest if shares dont seem that good, he answered CASH. He said people seem to have become accustomed to expecting high returns and they just arent going to be around in any investment class. They can only see the likelihood of losses in the coming months/years and suggest a 5% return will look very decent compared to the losses many will make.
For the first time ever I have a large part of my portfolio in cash.

 

[Aceyducey]

Originally posted by L Bernham
What I mean when I say I'm content that I made approximately $160K gain (well when the contract goes through).

L Bernham,

You say you made $160K gain in five years of owning an investment property in the greatest boom Australia has every had.

I'd be interested in hearing how & why you selected this property, what you paid for it, whether you negatively or positively geared it & what you expected to get as a return.

Cheers,

Aceyducey

 

[Duane (Fitman)]

Kochie wouldn't know an investment if he was sitting on it!... as for `investing in cash'!!!!! please?... LB how they heck are inexperienced investors going to become experienced if they sit on the sidelines & wait!!!!! wait for what?....huh...
Get out there...talk to agents & other investors....browse the web... read the books.... just do it... LEARN from your mistakes!
Don't park your money in managed funds/super/cash!!! crumbs in case you hadn't noticed all that stuff is going backwards.
cheers,
Duane

 

[L Bernham]

Yeah Duane, and I want to teach my kids to swim but there's a serious rip at the moment. How am I gonna teach them to swim when there's a rip? Simple, I wait for another day. I teach them some safety skills for the day when its safe and they can get in and try it for themselves, not at a time when they could nearly drown and be turned against swimming for ever.

How many amateur investors got burnt in the tech boom and now when you ask them about shares they answer "oh, no, never invest in shares, you will lose all your money" even though long term they have performed at an average of 13% per year.
NB - I'm not recomending shares as we have not even seen the bottom of the bear market yet.

 

[jahn]

L Bernham
Interesting

Ever hear of swimming pools. If the location you are in isn't satisfactory, but you are determined enough, go to a different location, but don't give up, because the conditions aren't right where you are.

Your post
"Unfortunately everyone sees themself as better than the average (yet 50% of them are below average). I did an interesting IQ test recently where you are asked to predict how you will compare to others.
Not surprisingly approx 98% thought they belonged in a higher category then their results actually showed. I'm embarassed to admit this included me. "

Casius Clay/Mohamed Ali, Greatest fighter/boxer used to proclaim out load, "I AM THE GREATEST" I heard a behavioral scientist applaud his approach because it was better than thinking, 'Is he (opposition) the greatest?'
We all know how good that would work!
I guess I would be amongst the 98%
jahn

 

[L Bernham]

Acey

I selected this property because it was Melbourne CBD and I was working on the assumption that property will always go up regardless of what or where I buy (this is what I had been brought up to believe). I figured if I could buy in a city like Melbourne I'd improve my chances even more. I had a 2 br apartment.
I bought it because the yield was good 8.5% gross and I expected a capital gain in line with inflation (this was also what I was told I should expect).
In short, I bought at the right time, in the right place because I was lucky. No major skill involved. I realise to make money in todays competitive market is very difficult. I also know there are a lot more sitting on paper profits that are unlikely to be ever turned into real profits. but anyway.
Also, I paid around $155K with a 16.5% deposit and sold for $317K.
Of course I wish I bought two of these with the deposit I had but at the prices today I wouldn't buy any and I have enough deposit for more than 2!

Interestingly I have a mate who declined offers for his similar apartment in the same area about 8 months ago for around $330K. As he has had a change of heart he now wants to sell but had had no offers (priced at $340K) recently lowered to $320K and still has had no interest in around 2-3 weeks. He is talking about reducing it even more to $300K.
Seems to me the begininngs of a buyers market.