bubbles defined

[L Bernham]

I dont have time to reply to everything so I'll just respond to some

Mikahila wrote
One more thing - did you apply PV function to realestate.com shares? If not, why not. If yes, what was the PV?

In a sense. But then I had to add value for earnings rising at the same level as they have been for the next few years. This gave me a conservative value of around $1.35- $1.50 per share. this is the speculative part and I'm not stopping anyone from adding value for rents rising above inflation if thats what they beleive will happen, as long as they realise that they are speculating as they can fall below inflation as well (as they appear to be doing in some regions at the moment).
I limit the speculativeness of it by keeping track of new RE subcriptions on realestate.com weekly and the exact number of new listings daily. As soon as I see this start to plateau I will do my sums again and sell if necessary.


abc wrote

Have you never confused anyone with your comments/ answers in this forum ?
Yes probably. I confuse myself sometimes
But I dont deliberately make invalid arguements to confuse others.

Pitt St wrotethere appears to be no mention of the leverage which is used by property investors to buy and control an asset (an IP) greater than that which their own capital allows?

they were taken into account by giving 6.5% as the discount factor in the NPV calculations. you can adjust your own depending on your leverage but even if you had 0% debt I would expect a discount rate of at least 6.5% is fair anyway.

abc also wrote

If we follow your theory we would not be buying property.

No. we wouldnt be buying the majority of properties at current prices now. In the past definitely.
A gamble on capital growth when properties are around NPV values or less has a lot less downside than when they are double their NPV. When they are double there is already so much capital growth and rent increases factored in you need these just to break even.

Mikhaila asked
Please tell me what would be a suitable price to buy the townhouse you provided as an example?
I dont really want to answer this question because my answer will be so low it will just make people angry.
I remember a stock forum I joined where everyone was talking about a particular stock that I followed. There was a competition running where we had to guess what the price would be in a months time. As I felt I had done a fair bit of research I made my guess which was about 20% below the current price and the lowest guess out of about 80 or so people.

You should have seen the abuse I copped. People telling me I had no idea and I should get off the forum if I cant be positve etc etc. I tried explaining why I thought like I did but it was pretty futile. They all had blinkers on to see what they wanted to see when all I wanted to do was help.
Needless to say, the end of the month came and the share price was down something like 50%. Did I get any thanks for those who had taken my advice? what do you think.

Cheers
LB

 

[always_learning]

I think it comes down to a core issue.

Why would you buy when you could rent for cheaper.?

In Australian big cities 3 or 4 % yeilds are becoming normal. To rent the same property is much cheaper than buying it with 80% finance.

In Japan it is the opposite, rent is more expensive ( approx 8%)than paying the mortgage (2.3%) plus expenses on the property?



How can this happen....investor expectations! Australians IP investors believe that the capital gains will make up for the rental losses. Japanese investors investors believe the capital losses will be made up for by rental profits.

I believe super low rental returns are a sign that prices are too high! If we think that humans behavior in market conditions is dominated by "manic depression" then Australia is in Property Mania, characterised by an overly optimistic expections wherease Japan is characterised by depression, an overly pesermistic expectation of continued price decreases.


(BTW Honestly if you could build/buy appartments and borrow at 2.3% rent them at 10%, pocket 5% clear profit after all costs how many would you build? My answer...as many as I possibly can!)

Also BTW I hear that a few developers have had success selling to OS interests for new developments in Singapore an Sydney; But only to the top of the market, new high class construction, super luxury townhouses of around 400m2, selling at $3-5M to the rich (I suppose this word is self evident) Maylasian and Indonesian interests, their focus being a "safe" haven for their cash.

 

[Mikhaila]

Hi LB,

I am sorry mate, but you have painted yourself into the corner with your answers. I think I commented before in another thread that you have an interesting discussion style. Somebody mentioned in this thread, however, if you want to be taken seriously you ought to give some direct and related answers. It’s getting rather boring otherwise as there is the limit of vague politician like answers I can take, can’t comment for others. No offence mate, and by all means I will be glad to see your posts coming whatever they are.

Cheers
M.

 

[suggo]

*Agrees wholeheartly with post above*

 

[abcdiamond]

LB
I've been re-reading this entire thread, trying to understand your views a bit better, and it made me remember how many times in the past, when I have been teaching people how to use accounting software, that my teaching has gone over the heads of most people. Often I have been able to tell just by looking at their faces. Unfortunately, we can't see each others faces here.

My answer to this has always been to slow down, and explain each bit in minute detail, ensuring that the audience understands the point that I am trying to make. The only other alternative is to throw my hands in the air and say "I give up". And YES, i admit, I have done this too. But in my defense, I had been trying to teach that person for 2 years!

I think that you do have some valid points, (although not clearly explained for my personal liking), but when someone gets my back up, I find it difficult to agree with them. We may have something in common there.?

Please don't take this as my agreeing with your arguments, after all, as an accountant I do sit on the other side of the fence to you

 

[Les]

G'day Mikhaila,

Just wanted to say "Thanks" for the Excel spreadsheet - it makes for an interesting look at the nuts and bolts of this thread.

It was interesting to me that the figures you chose for the rental and capital growths (together) averaged around 7%.

Using Jan as my mentor, she shows the long-term growth+yield %age is around 15%. I guess you just played "kitten on the keys" for the 15 year period (in your spreadsheet) without being too concerned re the outcome. And we can change these anyway.....

I wanted to make others aware that some of your cells can be changed to "average" the growths, and to arrive at a completely different answer from the original.

e.g. Sydney tends to have higher growth, with lower rents (average, long-term) so choose figures in Mikhaila's spreadsheet that reflect this. Other areas (e.g. Hobart) have much more yield than capital growth - but still totals around 15% (p92 - "More Wealth from Residential Property" - Jan Somers)

It also helped me to understand (somewhat) where LB is coming from. In an earlier post he commented something like "What if there's no Capital Growth because properties have peaked, then all you have left is Yield" (or words to that effect). I still don't subscribe to his whole argument, but your spreadsheet has helped me to focus better on the various nuances of this thread.

So, thanks, Mikhaila.

Regards,

 

[Aceyducey]

Agree with Mikhaila, ABC & Suggo.

LB, while you are very good at making partial cases & twisting facts, none of the formulations in ANY of your posts to-date have held up under the scrutiny and consideration of serious forumites.

And when the going gets tough, you immediately begin the snide remarks campaign...anyone who cares to read back through this thread (or the other threads you have contributed to) will note that your first response to criticism or queries is to denigrate the views of the people offering the comments.

If you disregard CG for property investment, of course property doesn't make sense.

Property is about CG - with a nice cashflow paid to you for holding the asset. Either you P&I the property, thereby increasing your capital through debt-reduction, and/or the property increases in value alongside the CPI (or better as historically). Talking about NPV is always fun & useful in valuing businesses (which can easily go under in the future) but is much less useful in valuing property - particularly if you only consider a diminishing rental return!

LB, go back to the stock forums - I'm sure the pseudo-science is more welcome there.

Aceyducey