Bailing out

[marcodepaul]

I have noticed a number of my friends and acquaintances who had been dabbling in Property Investment on a small scale, appear to be bailing out. Lured by the heady boom days, many are getting cold feet citing uncertainty, rising interest rates, government change and inflation as the reason for cutting and running. Have fellow investors observed a similar
“ groundswell” out there from these “fair-weather” investors?

 

[burty85]

yeah some of my parents friends are selling up, which is now got my parents Q about my plans to put more money into IP's. They want me to put it into my super, which im keen on but i still belive that property will be better for growth than my super fund... And what 22yr old wants to work to 55 get your super or 60 to get it tax free

 

[lizzie]

when everyone else is bailing, is the time for the astute investor to buy ... but pick the properties wisely and don't extend yourself to far. there might just be more rate rises to come.

 

[Simon]

Your friends will probably look at buying in again well into the next boom when they feel comfortable.

Buy high sell low!!

 

[Jontxu]

Herd mentality

Simon sums it up pretty nicely!

Good investors are lining up to profit from the “herd mentality”

Happy Investing
Jon Salvador
www.headinghome.com.au
For investors … from investors

 

[VYBerlinaV8]

yeah some of my parents friends are selling up, which is now got my parents Q about my plans to put more money into IP's. They want me to put it into my super, which im keen on but i still belive that property will be better for growth than my super fund... And what 22yr old wants to work to 55 get your super or 60 to get it tax free

I get the same comments about super, but my response is that I have no doubt that during the next 28 years (38 for you!), changes to super will ensure that the minimum ages relating to getting your super will increase. Also, when times get tougher, our labor govt will be sorely tempted to apply extra taxes to super held by 'the rich' (ie anyone who earns more than about 50k a yr or has more than a few hundred thousand in super). I have no intention of being held to the govt's arbitrary rules on when they think I should retire.

Also, if other investors are selling up, now is probably a good time to quietly pick up some bargains. True investors understand the cycle, and take advantage of it, rather than making emotional decisions like the rest of the herd.

 

[alexlee]

Buy when the crowd is selling. Always a good strategy.
Alex

 

[evand]

It sounds comforting but isn't ALWAYS good sense when it comes to property. The crowd isn't ALWAYS wrong.

As an eg. If rental yields are 2% and there is little or no cap growth potential. (which is the case now in a lot of areas) why buy? Why not wait till a better time?

The popular contrarian saying doesn't always refer to property but more to things like bananas, commodities etc where it makes much more sense.

Buy when the crowd is selling. Always a good strategy.
Alex

 

[alexlee]

It sounds comforting but isn't ALWAYS good sense when it comes to property. The crowd isn't ALWAYS wrong.

As an eg. If rental yields are 2% and there is little or no cap growth potential. (which is the case now in a lot of areas) why buy? Why not wait till a better time?

The popular contrarian saying doesn't always refer to property but more to things like bananas, commodities etc where it makes much more sense.

If the rental yield is 2% the crowd sure isn't selling, are they? Usually it's a crush of 'me too' idiots that drives yields to that level. In that case, the contrarian strategy would be not to buy because the crowd is buying.

Now, rents are increasing and I'm seeing 5% yields in my target areas. The buying signs are getting stronger.
Alex

 

[evand]

It was just an example Alex but theres no shortage of places with ridiculously low yields and little cap growth potential and no shortage of punters buying them. And a strong likelihood of increasing interest rates etc etc.

Can you confirm exactly who the 'me too' idiots are in your post? Are they the people buying that force prices up and therefore yields down or are they the people still buying? Or are they the same people?

 

[alexlee]

It was just an example Alex but theres no shortage of places with ridiculously low yields and little cap growth potential and no shortage of punters buying them. And a strong likelihood of increasing interest rates etc etc.

Can you confirm exactly who the 'me too' idiots are in your post? Are they the people buying that force prices up and therefore yields down or are they the people still buying? Or are they the same people?

You do it your way, I'll do it mine. I agree: I would never buy 3% yields. However, even in the face if higher interest rates, I can, and intend to, pick up a 5% yield house on a subdividable block. Especially as those used to be priced at much lower yields.

I saw plenty of 3% yields in Sydney and other cities at the peak of the boom. I define 'me too' idiots as people who buy because they see the market moving up and think it can never go down, so they ignore fundamentals such as rental yield. Most likely, they are people who just buy one IP (the majority of 'investors'), because most investors wouldn't be able to afford that many 3% yielders. I know I can't. Most likely, someone who buys a 3% yield property as a first IP will be scared off property now that the market in Sydney, for example, is coming down. Great for me.
Alex

 

[evand]

Its the greater fool theory. The thinking is that a greater fool will buy it from you (not you personally) at a higher price, while ignoring the fundamentals.

There has been a lot of talk lately on this forum on capitilising interest and paying interest from an LOC etc.

That talk is pretty recent and is a result of low yields and decreased serviceability.

I'd say its barley safe to do it in a rising market or a market with much better potential than the current one (i know there all different) but its downright dangerous at the moment imho.

Success in investing comes just as much from decisions not to buy as from deciding to buy.........and buy...........and buy.

 

[alexlee]

Depends on your LVR, doesn't it. If you have <50% LVR and you're capitalising say 5% a year, then you're safe for a few years.
Alex

 

[evand]

Thats true but to me thats not investing. Thats just covering your butt. Like you said mate, different strokes for different blokes.

Depends on your LVR, doesn't it. If you have <50% LVR and you're capitalising say 5% a year, then you're safe for a few years.
Alex

 

[Land]

Not investing?!

What do you mean 'that's not investing?'!!!

Of course it's investing. You're buying something with an expectation that it will rise in value and therefore increase your net worth. The method that you choose to ensure that you can retain your asset has nothing to do with whether or not it's an 'investment'.

As a few will be aware, I am a strong believer in capitalising interest as a method for resolving cash-flow shortages, it's a way of converting capital growth into cash-flow for an asset class (property) which is traditionally low yeilding.

Certainly it has it's risks, which is why, as our esteemed friend Alex pointed out, it requires caution and a healthy LVR prior to commencing.

Evand, I do agree that just because a crowd is doing something, doesn't necessarily mean it's wrong. However, this is a very, very common pattern where inexperienced investors bail out just towards the end of the down part of the cycle and don't have the forsight to realise that the market is going to come back up again as it does in the usual cycle.

 

[BayView]

I have noticed a number of my friends and acquaintances who had been dabbling in Property Investment on a small scale, appear to be bailing out. Lured by the heady boom days, many are getting cold feet citing uncertainty, rising interest rates, government change and inflation as the reason for cutting and running. Have fellow investors observed a similar
“ groundswell” out there from these “fair-weather” investors?

I consider myself pretty anti-social.

By that, I mean that I don't like to do what the 95% of the population are doing/have done. I am in the 5% that are left.

I have become this way for a reason;

95% of the population are poor, have no fiancial knowledge, no investments, have w'ends off and therefore create ugly crowds everywhere you want to go on saturday and sunday (which really peeves me) they all go shopping at the same time, creating more crowds, they all spend every cent on the latest electronic stuff, or latest model holden and so on and so on.

The other 5% are doing just the opposite, and have a much nicer life; less crowds, more wealth - life is fun.

I go skiing from Sunday afternoon until Wednesday night.
I shop for groceries at 8.00am on Sunday morning.
I don't play golf on w'ends; especially Sunday morning.
We travel outside of all school holidays, w'ends and public holidays; it's way cheaper and quieter.
I buy my xmas presents at midnight (or later).
I buy investment properties while my friends buy new cars and plasma tv's.
I stay in $50 per night hotels on trips while my friends stay at the Hyatt. It's still a bed and your eyes are closed.
I never eat at MacDonalds or Burger King or KFC and my waistline is fine.

You get my drift.

So, if the 95% are starting to sell, then I'm not. Never selling is my mantra anyway, so by virtue of this mindset I am never going to be in that 95%.

When the 95% are selling, I'm buying.

When the 95% are buying, I have already bought.

If you stay on this forum, you are in the 5%. The 95% are watching Australian Idol or Big Brother, or listening to how bad the property market is on ACA or whatever.

There are some stats around (can't remember where I read them) on the percentages of Property Investors and their properties.

I think it goes like this (correct me if you know for sure);
1% = 5 or more IP's.
5% = 2-5 IP's.
80% = 1 IP.
14% = buy 1 IP, sell it and never buy again.

So, the most successful Property Investors are not sellers; they are accumulators.
They watch, and wait, and lurk, and buy when the time is right for them, and never sell, and get rich.

 

[alexlee]

I've never cared what people CALL what I do. They can call what I do speculating, immoral, playing with people's lives, whatever. It will achieve my goals. If that's not investing...... do I care?
Alex

 

[stumunro]

it would also be very interesting to see where investors that are bailing out are investing their money?

i mean surely anyone in melbourne or brissy can't be complaining? Im assuming they are sydney or perth investors?

Oh well im glad that people are making fundamental errors when it comes to investing, as those that do their research and education will benefit.

 

[Land]

Amen to that Stumunro!!! Actually, amen to both LA Aussie and Alex!!!

I love going against the crowd (or just avoiding it altogether!).

It is comforting in a very selfish kind of way when 'investors' make fundamental mistakes because if everyone was switched on, the opportunities would be far more limited.

 

[marg4000]

It's horses for courses or what fits into your long term plans.

At the moment we are in the wind down (or wind up?) to retirement and have recently sold 2 IPs as part of our longer term plans.

At the same time we are encouraging our son (28) to maintain and extend his real estate investments (PPOR and 1xIP).

On the face of it the advice is conflicting, but he is in the asset accummulation phase of his life. We aren't.
Marg