All that D&G

[Sim]

But that's not me! I still own my PPOR and two IPs.

Well that's good then. Out of curiosity, could you explain your intention with those IPs ? Will you hold them and pass them on to your kids ? Are you planning on selling them at some point ? Are you planning on buying more ? If you are at a stage in life where buying more is not an option, that's fine - I'm just curious as to your plans (in broad terms - without needing to go into too much personal detail).

I have spent this year trying to cool the ardor of excited beginners who wanted to jump into the stock market because "the banks are so cheap". I like to think some stopped and had a closer look, but I don't know. Is it this "off topic" theme that has upset Sim?

Not at all - if those discussion are kept to the Coffee Lounge, I say go for it (although I could suggest some better forums for such discussions ). FWIW, I've been saying similar things about the sharemarket for a while now - I don't think we've seen the bottom yet, and people tend to look at measures like dividend yield with a bit too much of a simplistic view (not understanding that it is a backwards-looking figure which may not hold true moving forward). I see too many people making decisions based on a poor understanding of how things work - hence my desire to try and facilitate as much Investor Education as I can - at least on the mechanics of investing, if not the strategy (which is a completely different question).

 

[lizzie]

I've been tapped on the shoulder and will go. But I can't just do it cold.

hey - don't go!! i'm with michael - if i had listened at the peak of 2004 (and not bought), if i had listened at the peak of 2007 (and moved into a cash smsf), if i had listened in october (and not leapt into shares to early) - i would have been a much richer person then today.

it has taken me 5 years, but now i am listening (finally) - so will not lock my interest rates in until early next year, regardless of how tempting 4.99% looks.

my inability to listen in the past has cost me around 5years in my investing timeline.

my problem is that i am too optimistic ... so we need some wise and pessimistic heads at this forum.

p.s. is borjk supposed to be an asset or liability?

 

[GIDDO]

I have spent this year trying to cool the ardor of excited beginners who wanted to jump into the stock market because "the banks are so cheap". I like to think some stopped and had a closer look, but I don't know. Is it this "off topic" theme that has upset Sim? There are people here with more knowledge of property than I so I leave that to them.

I've been tapped on the shoulder and will go. But I can't just do it cold.

Sunfish, i trust you haven't been literally asked to trudge off into the mists!
I would be very cheesed if we lost you.
Although you sometimes stir my emotions a bit too much, I am absolutely certain that we need you to stay.
Do we wish to be all vanilla flavour property boosters?
No we need those flaky choc chips in there as well. Yay for the flavouring!

I was one that noted your advice in 07. I had a margin loan with a managed fund which I sold in July 07. So pleased now.

Don't go unless you are officially banned. Although i note you have already done a lazarus once or twice I think.

Don't give up and go. We would be poorer.

 

[lizzie]

Do we wish to be all vanilla flavour property boosters?
No we need those flaky choc chips in there as well. Yay for the flavouring!

i bags i'm the bubblegum flavour with chew jubes (goodygumdrop)

 

[Sim]

PS If I'd listened to Thommo, and a few others like him, at the top of the stock market I would be a richer man today...

The problem with listening to most of the D&G's is that eventually they will be right ... just as those predicting a huge boom will eventually be right too.

People were calling an end to the last property boom years before it ended, and similarly they were calling an end to the recent sharemarket boom years before that ended too.

It hasn't ended until it actually ends - the key (in my opinion) is to have a plan in place for dealing with with the end of a boom or a change in market conditions. This largely applies to the sharemarket where the volatility is much larger and especially if you have margin loans and hence need to manage your risk much more actively than with real estate.

Real estate is much more difficult to deal with given that the information is far less accurate and not as timely. That being said, looking to "trade" real estate (buy and sell for quick gains) is a vastly different ball game to what most real estate investors play - and most will likely hold through a market downturn rather than look to time their exit (by the time it's obvious that the market has turned, it's usually too late to try and exit from property given that the market becomes quite illiquid very quickly - as it is now).

I see no place at all for a D&G attitude - if the property market booms, there are opportunities, if the market crashes, there are opportunities. What makes a good investor (in my opinion) is someone who looks at the markets (no matter what condition they are in) and thinks "how can I profit from this". Someone who runs around crying that the sky is falling (or predicting that it is about to fall) is adding no value. Similarly, someone who criticises the newbies telling them that their strategy is doomed to failure is adding no value unless they are also explaining what WILL work or how they CAN make money.

 

[willair]

I've been tapped on the shoulder and will go. But I can't just do it cold.

Not again,you will run out of names..willair..

 

[Sim]

I've been tapped on the shoulder and will go. But I can't just do it cold.

I missed this comment of yours earlier. I'm more interesting in having you ask yourself "am I here to learn" or "am I adding value" ? If the answer to both those questions is "no", then I would suggest that perhaps there are better places for you to spend your time.

But if you genuinely believe in real estate investment - then nobody is asking you to leave - just perhaps to keep in mind that while opposing points of view are valid, negativity for the sake of it is not constructive.

 

[Piston Broke]

There are some of us here who have spent the last 20yrs invested in real estate and plan on continuing investing in RE for the next 20.
But when we posted that prices will not go up every year forever, that you will not be able to borrow->buy, borrow-> ad infinitum and have your IP list look like a nuclear chain reaction chart, we got treated with contempt.
Those who earned fees from people believing that theory, were treated as "experts".
Those who did not concur, were outcasts, naysayers out to spoil the righteous party of the true believers.
The fudgy figures published by the REIA could'nt possibly be wrong, nor could those fast numbers on API mag. People who bought their 1st house being (and still are) quoted as "experts".
And of course median prices are the bible...

What did'nt seem to sink in was that some of us were well aware that our (well mine at least) paper losses would be more than the networth of the avg Australian, ie many hundreds of thousands of dollars.
But that's how any market goes, always has, no reason to expect anything different.
So when reality became obvious, it seems investors may start to realise that bull markets dont last forever. That the market moves the other way, and if your not prepared, you could be in for a lot of trouble.

Of course this happens with any other market, many people believed the stock market would go up forever too.
"Stocks down 10%, good buying"
"Stocks down 20%, great buying"
"Stocks down 40%, excellent buying"
"Stocks down 50%, terrific buying"
"Stocks down 60%, margin call" (and no more LOC)

All those paid experts never had a clue it was coming, because they are "paid", not experts.
As Bill.L. points out often, those people are no better at prediction future markets as the avg Joe on the street. And I will add that their so called "expert opinion" is often the product of someone else's agenda. I know of many people who right reports for big firms, starting from the conclusions . I just have no clue why they wold tell me such things.
Look at BHP, not even those ppl being paid many millions each year could see it coming.

So where are we at this time?
Well I see the RE market still pointing down with no bottom yet.
The economy keeps slowing down, inflation goes up.
Even the boom states of NT & WA have turned downwards.
I think that this low economic environment will last another 1-2 yrs, perhaps more.
In that time we will see many more businesses close, much more unemployement and many more mortgagee sales.

But what about lower interest rates?
Well the most scary statistic is that household debt/income is 177%.
That means all the growth is coming on borrowed money.
People are living way beyond their means. So when do they get to the point where they can no longer borrow any money?
The gov. is handing out money with a "go spend it" mandate, but if lower rates are not used to pay down debt, then it's just delaying the inevitable.
After the tech-reck US rates went down to <2%, so what happened?
People kept on buying & spending more borrowed money.
At first the appearance was that the economy was growing, all those "expert" reports of a "resilient great American nation blah blah".
All it does though, is delay the inevitable, and make it last longer when it happens.
It aint pretty when it happens, and nobody like to see people go bankrupt, but how long can people keep borrowing and never have to pay it back?

It's no different for business either. How long can corporations keep expanding on borrowed money? Sooner or later they too have to pay it back.

So how does the debt problem unfold?
- They can stop spending, and start saving = economy drops
- Earn more money, pay loans with extra = economy steady
- Earn more, save more = economy drops
Is there a solution that does not involve "economy drops"?
Yes, more free money from the gov. and never ending increasing loans.
But who pays the price?

Let me make it clear that I think for me (and for them) as an RE investor/owner it's better that these people save their money, repay their loans, and look at buying RE or IPs.


That they use interest rates reductions to pay off debt and get ready to buy RE instead of going on holidays or binging on xmas presents, as the media seems to be reporting.
It just means i have to wait a little longer before my RE values come back.
In the mean time, I keep my ear to the ground and always on the lookout for opportunities that may be out there.

Have a great day, I know I will.

ps I might turn up at the picninc for a brief hello. I'll be the one with the hard hat and the full metal jacket with the words "Hurt Me Please" on it

 

[topcropper]

I see no place at all for a D&G attitude - .

Well, I'm buggered if I can see any problem with D&G discussion. I enjoy discussing what the bad outcomes could be.



We seem to have split into two groups.

One group is using a top down analysis. Looking at the state of global business, debt, deleveraging, companies going bust, unemployment rising etc. I'm in that group, as is Sunfish, evand, Greatpig, Trendsta, willair, non-recourse etc.

From my top down way of looking at things, I'm thinking 'how the hell can property boom when the business's that make the money are doing it so tough, and especially now the commodities boom has busted?


The other bigger group is using a bottom up analysis. Interest rates are dropping woo hoo, rents rising woo hoo, positive geared property everywhere, bugger the economy who cares, etc. People in that group are michael W, rixter, Boomer, nathan, Bayview, lizzie, chillia, Peter 4.7, Shadow etc.

Michael W is looking at 6% yields and 5% interest rates and jumping for joy.



What camp is sea change and handy andy in? They are quiet? maybe they are all busy sneeking about and buying up, or perhaps battening down the hatches. What about Brenda and Keith j..?? Bill L has a foot in both camps.



All very interesting.



Anyway, this forum would be as boreing as hell without the opposite of the property will boom forever brigade.


See ya's.

 

[Sim]

Well, I'm buggered if I can see any problem with D&G discussion. I enjoy discussing what the bad outcomes could be.

I know it's largely semantics, but I do differentiate between discussion about weakening economy and falling property prices ... and a "sky is falling" attitude where all investors are going to hell (which is what I refer to as D&G).

We do have an "economics" forum for a reason - discussion about the economy is actually encouraged.

However, I the main problem I have with a select few posters who focus only on the economy and how bad things are getting, is that they offer no insight into how we can benefit from it, and don't seem to be interested in the positive aspects of the normal movements of a market cycle (even if that cycle movement is exaggerated by external forces like a significant credit squeeze). They are not looking for opportunity - they are only looking for negativity.

Anyway, this forum would be as boreing as hell without the opposite of the property will boom forever brigade.

I'm not actually in favour of a "boom forever" type attitude either. This indicates the same lack of understanding of market cycles as someone who claims the sky is always about to fall. There are always periods of negative growth in most asset classes - these should be planned for and taken into consideration when investment decisions are being made.

People like see_change made a lot of money by watching these cycles very carefully and buying ahead of the boom. He recognises both sides of the cycles and understands that one part of the cycle creates opportunities in the next.

 

[Sunfish]

Quote:
Originally Posted by Sunfish
But that's not me! I still own my PPOR and two IPs.

Well that's good then. Out of curiosity, could you explain your intention with those IPs ? Will you hold them and pass them on to your kids ? Are you planning on selling them at some point ? Are you planning on buying more ? If you are at a stage in life where buying more is not an option, that's fine - I'm just curious as to your plans (in broad terms - without needing to go into too much personal detail).

I have been open about my investments so I'm not rehashing this stuff.

Quote: Sunfish

I have spent this year trying to cool the ardor of excited beginners who wanted to jump into the stock market because "the banks are so cheap". I like to think some stopped and had a closer look, but I don't know. Is it this "off topic" theme that has upset Sim?

Sim.

Not at all - if those discussion are kept to the Coffee Lounge, I say go for it (although I could suggest some better forums for such discussions ).

But the eager beavers were posting on Somersoft, not HC. There are plenty there to advise caution so I don't have to take up the good fight there.

 

[Sim]

I have been open about my investments so I'm not rehashing this stuff.

Forgive me if I haven't read all of your posts under all of your aliases over the years. Also please forgive me if I am disinclined to search back through all of your thousands of posts trying to locate those little gems of information. I was just curious.

 

[boomtown]

Piston Broke:

Debt is fine so long as it remains serviceable.

177% long term debt to annual income ratio implies an average debt of $97,350 (assuming a median wage of $55,000).

At 10% IRs, thats $9,7350 pa in interest repayments which is perfectly sustainable on an income of 55k. Of course, IRs are significantly lower at the moment.

Now if you want to explain why current debt loads are no longer serviceable (or will not be serviceable) over the coming few years - that is fine.

My take on it is that lower IRs will increase serviceability and higher unemployment will reduce serviceability. Accordingly, unless we have a significant increase in unemployment, we will not have a significant decrease in serviceability.

So unemployment is the kicker - can Australian companies keep Australian jobs? Perhaps I am foolishly optimistic but I believe the answer is - for the most part - yes.

 

[nonrecourse]

History in the making

What has increasingly alarmed me about this site is the dismissive myopia with regards to the unfolding financial tragedy and the naive belief that property investors will be immune to the world wide consequences.

The fact that property has not fallen 50% yet is a function of the asset class rather than an inherent margin of safety that many on this site subscribe to.

As most share pundits will tell you shares are a much more liquid asset and is therefore more prone to the vagaries of a panic disposal. It also bounces back much quicker.

The property market in Australia is not one uniform market. There will be some markets like industrial, commercial and holiday that may drop 70% and there will be other parts like residential that will drop 40-50%.

The drops will be incremental but progressive as the amount of credit available dries up over the next two years.

During this two year period 2009/2010 the public will come to realise that the structural damage to the world wide economy is much deeper and prolonged than has been mooted.

I have been challenged to provide proof. The proof is called the fractional reserve banking system and the CDO crisis that has exposed our fiat currencies to the soft financial depression we are now entering.

If you read the financial review yesterday 04.12.2008 there was an article about the once mighty private swiss banking behemouths that has seen 85% of the banks capital disappear into a black hole.

Over the next 2 years we will see thousands of smaller banks that are under capitalized fail world wide. This is not my opinion, if you doubt what I am suggesting ask yourself why has the bank of England reduced its rate 1.5% last month and 1% this month ?

Why has the US government lied about being in a "recession" for over a year now? Why has Kenvin Rudd handed out 10 billion dollars to the battlers?

Rather than dismiss this have another look. If your borrowings are such that you can withstand a drop of 50% in your LVR and can continue to service your loans then you will be licking your lips in anticipation of the greatest fire sale in living memory......... Provided you can self fund the depreciated assets on offer.

This is not going to blow over as some have suggested by the middle of next year. You will see the ASX bottom out next year in October at around 2200 but property will continue to fall for another year after that. The share market by 2009 will have factored in the further deterioration in asset values that will come on in 2010.

For the next ten years taxpayers world wide are going to be paying for the financial follies that our banks and regulators have allowed. That means ten years of less money for essential services, education and infrastructure.

Financial deregulation will be remembered as a disaster. It didn't have to be that way. As property investors we all benifited from deregulation. Nothing lasts forever.

For those who have ignored the warning period that your asset class has given you..... Gearing is a two edged sword

 

[MichaelW]

Michael W is looking at 6% yields and 5% interest rates and jumping for joy.

Wouldn't you...

Unlike the equities market, the income/yield side of the equation for IPs is more resilient in tough times. The reason forward equities PERs are disregarded so much at present is because of the downside risk to the "E" (Earnings) side of the equation. On that premise, prices have come off substantially whilst the market is ahead of the earnings downgrades.

Extend that logic to the real estate market, where there is still strong demand for accommodation due to prevailing vacancy rates and I see much less downside risk to the "E" (rent) side of the equation. As such, I don't see prices coming off as much as the yield is more resilient.

At the end of the day, the price of any asset is the present value of its discounted future cash flows. For IPs, you might factor an inflation rate capital gain assumption for future disposal as well as rental incomes and negative gearing handouts in your income stream. Prices in this asset class today are justified, as are prices in the equities market. The difference is that the equities market has been hammered due to the pre-emption of profit downgrades. Few people as yet are calling massive profit downgrades in the rental market. If there is mass unemployment and rents ease, then it follows that prices are less supported. I personally believe the vacancy rate prevents too serious a rental depreciation scenario.

I'm not factoring future capital gains into my equation at present though. If its cash flow positive, then its all gravy train. But I am factoring in my equity creation through development. In a flat market, you can't expect the equity fairy to do it for you. You either need to ramp rents or build in equity. I'm doing both.

Cheers,
Michael

 

[MichaelW]

For the next ten years taxpayers world wide are going to be paying for the financial follies that our banks and regulators have allowed. That means ten years of less money for essential services, education and infrastructure.

Financial deregulation will be remembered as a disaster. It didn't have to be that way. As property investors we all benifited from deregulation. Nothing lasts forever.

For those who have ignored the warning period that your asset class has given you..... Gearing is a two edged sword

Nonrecourse,

What I dislike about your posts is the way you talk about one potential outcome as if it is a foregone conclusion. Right down to claiming to know what level the ASX will bottom at and when. The problem is that noone can say for sure what will happen with credit markets over the next two years. I agree wholeheartedly that they've had an unprecedented massive dislocation, but I disagree with your forward projections that this is therefore the end of the world.

An equally probable outcome is that once Obama takes office and starts dealing directly with the royal families in the middle east, then he will be able to trade geopolitical favours for an injection of their massive sovereign wealth. Its not in their interests to see the debt dependent western world enter another depression. A lot of their sovereign wealth is already invested in western asset classes of one form or another.

Just trying to point out that your iron clad future scenario is not quite as iron clad as you make out...

Cheers,
Michael

 

[Aaron Sice]

all you will see, is what you are looking for.

i'm looking for opportunities - and i see them. i want to expand. i want to become financially independant - so i'm finding what i want to.

if you are looking for the signs of depression, recession etc then you will see them.

i have been looking at the recession - depression side of things; hard.

i've been trying to understand the mechanisms behind FIAT debt, and doing a good job if you dont mind me tooting my own horn. i'm seeing signs that things are "okay" above and "bl00dy awful" underneath. and it worries me.

but it's paralysis by analysis. do i invest, or do i not?

the risks for both are great - i could miss out on a fortune if i pick D&G and we get another boom, or i could lose a fortune i never really had - and have to pay for - if i borrow for an upcoming boom that never eventuates.

so, i say pick a direction. any direction. understand your own conviction behind it and leverage/deleverage with that.

i would rather be in the "regret the thing i have done, not haven't done" boat than anything.

and at the end of the day, if it all turns pear shaped, you had a shot. good on you. what did you learn? how can you apply that for next time?

life doesnt end because you got an investment strategy wrong. life goes on - so learn from it.

bankruptcy provides the best SANF ever.

 

[willair]

There will be some markets like industrial, commercial and holiday that may drop 70% and there will be other parts like residential that will drop 40-50%.

Why has the US government lied about being in a "recession" for over a year now? Why has Kenvin Rudd handed out 10 billion dollars to the battlers?

Because it is public money,it's not as if it's his money,and governments are great about telling you what they did like all snake oil humanitarians,just to buy votes.
imho..willair..

 

[lizzie]

the risks for both are great - i could miss out on a fortune if i pick D&G and we get another boom, or i could lose a fortune i never really had - and have to pay for - if i borrow for an upcoming boom that never eventuates.

but if your borrowing is at 5% and your return is at 6% (after costs), then it is not you "paying" for the risk of holding on for the next boom ...

i know which option is risker imo.

 

[plusnq]

but if your borrowing is at 5% and your return is at 6% (after costs), then it is not you "paying" for the risk of holding on for the next boom ...

i know which option is risker imo.

There's a lot of self funded "value" out there if you can hold for a few years. Of course if we have a massive depression and descend into anarchy it won't matter whether you are debt free or not.

Cheers (I think )

Shane