API Mag Article Seems Hard To Believe

[JWR]

Has anyone read the recent article about the electrician who has 3.7M equity and 10k cash-flow per week at just 24!

It seems quite hard to believe the rents he is getting (and values) and further how he did it so quick.

My biggest fear for the investor in the article is the fact that he has all his big investments in Newman; a mining town - and if/when the mining boom fails he will have negative cashflow and negative equity.

Would anyone on here recommend what he has done or is it too risky?

Personally I'd rather 370k equity and a neutrally geared portfolio with properties in safe areas across the country than what he has embarked on thus far in his short career.

James

 

[sanj]

Has anyone read the recent article about the electrician who has 3.7M equity and 10k cash-flow per week at just 24!

It seems quite hard to believe the rents he is getting (and values) and further how he did it so quick.

My biggest fear for the investor in the article is the fact that he has all his big investments in Newman; a mining town - and if/when the mining boom fails he will have negative cashflow and negative equity.

Would anyone on here recommend what he has done or is it too risky?

Personally I'd rather 370k equity and a neutrally geared portfolio with properties in safe areas across the country than what he has embarked on thus far in his short career.

James

you would rather 370k equity than $3.7m? he can liquidate everything tomorrow and still be way in front

will look for the article, thanks for the heads up.

 

[JWR]

I would rather not take the risk in achieving the super-sized results and settle for a lesser amount instead of potentially bankrupting myself in the process.

 

[Ideo]

you would rather 370k equity than $3.7m? he can liquidate everything tomorrow and still be way in front

will look for the article, thanks for the heads up.

I think the comment was more about the cyclical nature of mining boom towns.

You can get trapped in a plummeting market.

 

[HotRod]

As long as he has an exit strategy, then there should not be a problem.

But, to have all your eggs in one basket can expose you.

Newman is a mining town based around the BHP operations in the region.

One just needs to satisfy themselves that China is happy to keep on buying iron ore. Some people say that China has massive stockpiles and can't use the stuff, others say that they need all they buy with the 1M people per month moving into cities in China.

 

[HotRod]

I would rather not take the risk in achieving the super-sized results and settle for a lesser amount instead of potentially bankrupting myself in the process.

If he is highly levereged (80 to 90%) and the market rents come off quickly 10 to 20% as rental yields determine price in that part of the world (if say America defaults, China dumps US bonds and their economy goes into recession) and keep falling, he will be in that position.

If he is around the 60 to 70% and rents turn he can firesale and liquidate and get out with a little profit, but stillin the meantime enjoy money for nothing.

 

[Rolf Latham]

Newman , PH, Karratha etc will be around for a loooooooooooong time '

read HI Equity most recent post on energy prices..................


Concentration risk sure..............

ta
rolf

 

[JWR]

He's only around 50% LVR - which is a good thing

I just find it very hard to believe the rents and values he is achieving is sustainable for the long term.

I also find it extremely hard to believe how he purchased some of these sites (where he subdivided and built upon) in the first place as the costs were at least $1M each.

I suppose I would consider it if it was buy, build and sell... but seems very risky to me.

 

[Rolf Latham]

I suppose I would consider it if it was buy, build and sell... but seems very risky to me.

JUst like hurtling around a race track at 250 kmh plus...............risky from the outside, busloads more risky perception as a passenger, usually quite controlled and subdued if the driver.

Personal experience makes a huge difference. Just like you personally may get a lecture from XYZ about the big risk you are taking on...........its all about perception

I reckon DAZZ will be here real soon to talk about risk, he is a specialist in that area on a number of fronts


ta
rolf

 

[JWR]

We shall await the great man

 

[HotRod]

He's only around 50% LVR - which is a good thing

I just find it very hard to believe the rents and values he is achieving is sustainable for the long term.

I also find it extremely hard to believe how he purchased some of these sites (where he subdivided and built upon) in the first place as the costs were at least $1M each.

I suppose I would consider it if it was buy, build and sell... but seems very risky to me.

With 50% LVR he's got a very big safety buffer there.

The rents are probably not sustainable in the long term with more land being developed in Newman (and Port Hedland/Karratha) but whether that will start to reduce the rents or just cap them for a number years, who knows.

At least as the owner, when the properties he owns no longer increase rents or start to decrease, he can use that as a trigger to start to sell as that will be the indication the market has turned.

 

[locko24]

Personally I'd rather 370k equity and a neutrally geared portfolio with properties in safe areas across the country than what he has embarked on thus far in his short career.

James

I guess that's why you don't have 3.7 mill in equity.

My risk factor would be somewhere between yours and his...

 

[JWR]

Not yet anyway Locko

I am prepared to take on calculated risk in safe areas though which should yield great results.

 

[HiEquity]

Well, Gina Rinehart has about $20bn in exposure to a few iron ore and coal interests.

Is that really risky? Looks like a reasonable return for the risk at any rate... I'd take that over a fleet of capital city IPs any day!

In order to comment on whether this is a high level of risk or not you need to know a lot more about the fundamentals behind the Newman property market.

Some would say they are significantly stronger than many capital city markets at the moment and likely to remain that way for some time to come. I can only suggest doing some serious research into these claims, including some of the fundamentals of the global iron ore market before passing comment about "risk" in Newman.

Of course a lot of that is priced in already for new entrants but holding existing assets that are yielding so well doesn't look particularly risky to me. Good on him I say - he has done exceptionally well for one so young.

 

[recruit2]

Newman is insane.

I know other stories that have come out of that place and its just insane the cash flow moving around in that little town.

But no I wouldn't buy in at the current ridiculous prices i.e. $780,000 for an absolute dump that rents for $1500 per week. That's awesome cash flow while the going is good, but a very large risk should BHP suddenly reduce operations. You'd be declaring bankruptcy and starting over with losses like that.

The time to be there was 10 years ago when these places cost $40,000. Those people are debt free in $3m houses on the east coast now.

 

[Property Meister]

an interesting point to note, that over the past few months the 40 or so people they have profiled, only 1 or 2 people has actually bought a property in VIC, SA, TAS, NT (give or take)

But no I wouldn't buy in at the current ridiculous prices i.e. $780,000 for an absolute dump that rents for $1500 per week. That's awesome cash flow while the going is good, but a very large risk should BHP suddenly reduce operations. You'd be declaring bankruptcy and starting over with losses like that.

The time to be there was 10 years ago when these places cost $40,000. Those people are debt free in $3m houses on the east coast now.

Exactly!! I know a guy who owns his own construction company (or part of) building accomodation for those WA mines, and even he doesnt even know where the next boom is and according to him, even him, by the time he finds out, its too late

 

[Sailesh Channan]

At 24 what does he have to loose. He probably started with almost nothing so good on him for trying and he just happened to be at the right place at the right time and more importantly he acted the opportunity while others would have stood by and watched it all happen.

A lot of these small town folks do not openly share information with out of towners so it is not a strategy that we all can access as it requires local knowledge and contacts.

 

[Jacque]

The time to be there was 10 years ago when these places cost $40,000. Those people are debt free in $3m houses on the east coast now.

And they certainly would have been considered risk-takers even back then
What an amazing story - I haven't yet read the article but will be sure to soon. Thanks for the heads-up.

 

[Property Meister]

And they certainly would have been considered risk-takers even back then
What an amazing story - I haven't yet read the article but will be sure to soon. Thanks for the heads-up.

the question was, was it really a risk?

did he simply look on the map and go eeny meeny mony moe?

or if he had info that there was going to be a boom, then its not a risk at all, just at the right place at the right time

however, it seems like more he got lucky, for every one person that is lucky, im sure there are about 50 that are not

 

[boomtown]

Well, Gina Rinehart has about $20bn in exposure to a few iron ore and coal interests.

Thermal coal is about $100 tonne now.

According to the Hancock Coal website the Alpha and Kevin's Corner Project have a combined resource of 7.9 billion tonnes.

7.9 billion x $100 is $790 billion ignoring her iron ore assets.

Now I'm not dumb enough to believe that all or even a majority of the resource is economically extractable. But there's probably more at play than just $20 billion.