Building Wealth in Uncertain Times

[The Fence]

Wonderful to hear from you Ian.....great post and took me back to Jans books instantly.....!

Time has shown us move from neg. geared and tax credits, to now about to become +ve due to GE Money announcing to waive deffered establishment fees to borrowers refinancing.
Half our liabilities are about to be brought back to 5.25% (from 7.7%). A great opportunity to lower LVR's and get set again....

The Somers way suits us just fine....long term...!

Thanks again Ian & Jan.

 

[Perth Investor]

Sorry to be off topic, I'll be quick

Thorpey do you have any more information on GE waiving DEF's?

I'd love to know more.

Noel

 

[The Fence]

Yep, caught it here as it came to the desk.....

http://au.biz.yahoo.com/090219/2/24pt9.html

 

[evand]

My post about a new paradigm in property investing in Australia was not related to the current recession/world financial crisis etc. This will pass, they always do.

As current low interest rates are temporary and will pass. I know a lot of property investors are thanking the world economic crisis for saving their butts in that regard.

I think there is a possibility that a shift (or a long term reduction in prices) will occur because we have never had the level of debt we now have and current housing prices are at never before seen multiples of wages. But the current world economic problems don't help, it will take quite a few years for that stuff to fully clear up i reckon.

The above leads me to believe the levels of debt and the mega high property prices will take a very long time to resolve, if at all and i think there is a slim chance the golden days of property investing could be over.

I believe many persistent D&Gs think that this current/coming downturn/recession is different, 'this time it is different' for Australia, that there will be a one time event in 100+ years and that it will mean a 10+ year of flat/declining price for RE, never been recorded in official stats in Australia before. In other words, despite all the economic pump priming of all the top global countries, the one in more than 100 years unseen-before event will happen. It will mean a less than 1% chance-of-happening event materialising, ushering in a new 'paradigm'.

Of course, this is not a call to throw caution to the wind, as always in RE do DD and calculations, but above all it helps to see through the fog if we can see the big picture in current economic perspectives.

 

[BayView]

Sorry to be off topic sim.

Peter

What's with the big blitz on off topic comments all of a sudden?

Who cares?

 

[sparky23]

What an inspirational post!

As most people know we had it tough over the last year but I have fought tooth and nail to hold it all together because I know that even if we don't buy any more property (and we will) in 10 years time the $3m we have now will be worth $6m and will give us options as we head close to retirement.

Sure I had to shed a couple of properties and take out equity and debt I would have preferred not to but the discomfort of one year is far outweighed by what the future will hold.

So what was our alternative?
Well before I started to get educated about property approx 5 years ago we were both earning a good wage but somehow there was never much money in the bank even though we didn't seem to spend much either, I have no idea where it went! Now we are holding 7 properties and a block of land despite last year - it has to make more sense than having nothing!

I am not resentful now about last year, I was becoming too aggressive in my investing so it was a good lesson to learn and I had to learn it!

 

[chilliaa]

My post about a new paradigm in property investing in Australia was not related to the current recession/world financial crisis etc. This will pass, they always do.

As current low interest rates are temporary and will pass. I know a lot of property investors are thanking the world economic crisis for saving their butts in that regard.

I think there is a possibility that a shift (or a long term reduction in prices) will occur because we have never had the level of debt we now have and current housing prices are at never before seen multiples of wages. But the current world economic problems don't help, it will take quite a few years for that stuff to fully clear up i reckon.

The above leads me to believe the levels of debt and the mega high property prices will take a very long time to resolve, if at all and i think there is a slim chance the golden days of property investing could be over.

Evand, you post surves a useful reminder why its not just important to acquire a portfolio of properties, but also to be able to HOLD them during different investment climates.

But having said this, the truth is we just dont know how the future will play itself out. What if we went through a period of high sustained inflation (nominal property prices could be maintained, but drop in real terms). A sustained period of high inflation would enable wages to catch up with historical averages (and even here we have to be careful, because in the modern world we have two income earners as opposed to the traditional single family income generator).

But again it gets back to the Sommersofts original mentality over property.
Buy property gradually as you can afford it, and let time in the market do its work for you.

Now lets assume you are correct in your views. For a new commer who hasnt over extended himself, he shoud still be ok as the size of his commitments will relatively small. For an old player who has slowly been acquiring a portfolio, he should also be ok, as sufficient time in the market should have allowed the initial properties to be well and truely cash flow positive(and LVR's on initial purchases should be very conservative by now) which will act as a buffer against newer properties.

Its the gung ho investors who have to do everything by yesterday, and the market timers (who either must have lots of property or no property) that are at the greatest risk.

 

[boz]

What an inspirational post!

A I was becoming too aggressive in my investing so it was a good lesson to learn and I had to learn it!

Never heard that be agressive is bad for investments.
I think it is about emotions taking control of investing strategy instead of logic, homework and research, number crunching and risk management. I would ask a third party to analise and get an opinion on what went wrong and what went right.'
I wouldn't give any advice concluding "you have been to aggressive!", it just doesn't make sense to me.

 

[Rockstar]

But again it gets back to the Sommersofts original mentality over property.
Buy property gradually as you can afford it, and let time in the market do its work for you.

It really is a recipe for success and is obviously much more involved than this statement. To understand the whole recipe you really need to read Jan's book and I would be interested to know exactly how many of the forums' regular posters have read her book/s.

But not only do people need to follow the recipe they also require inherent personal characteristics to deal with issues that surround the discipline of utilising money/debt in the correct way in order to increase wealth.

The Somers' path requires a particular mindset and will not suit everyone. It doesn't totally fit my plan but I can appreciate its effectiveness through reading the book a couple of times and it compliments my strategy of developing and holding as much of a portfolio as possible within my safety zone.

 

[WASP]

Works for me. Ian's sentiment is right on the money.

Even if we do have average or below average returns for an extended period, property still works as an investment vehicle. In simple terms:

Yield 5% odd
Growth 3% odd per annum in line with inflation

Even allowing for no negative gearing cash back for the shortfall between yield and interest rate, you're still making a year 1 return of 8%. Token Funder suggested 8% is a good rule of thumb interest rate to use so that means returns equal expenses in year 1.

Then the time value of money kicks in. The yield increases in line with inflation annually as rents increase, but your interest expense is on a fixed capital loan at year 1. The loan principle does not increase with inflation, its fixed. So, assuming a constant yield and interest rate to take this complexity out, this means your holding costs depreciate over time, whilst your income increases in line with inflation. Awesome! Ian and Jan nail this in their books with nice worked examples as Jan was a math teacher. The real clincher for IPs is the time value of money.

So, in year 2 your return beats your expenses due to interest deflation. And year 3 beats year 2 and so forth.

Even with very conservative assumptions around yield and growth, IPs work as a long term investment. But that's the trick, they're a LONG term investment, not some speculative capital gain play.

Cheers,
Michael

The only concern is that rent is a supply and demand issue, we have had times where rents overshot and also stagnated due to supply n demand

 

[WASP]

What's with the big blitz on off topic comments all of a sudden?

Who cares?

It gets annoying and then you have all and sundry requesting to get back ON TOPIC?

Sad to see some threads denegrate to an on line slug fest, as Blue Card says we all become losers there

 

[evand]

Obviously you don't believe that people can have different view points on things.

i think some people just like to disagree for the sake of it.

 

[evand]

This has nothing to do with property investing. It has to do with this guys mindset and what type of person he is.

If he didn't want to invest in property because he didn't think its a good way to wealth, that's his prerogative. He could have learnt about the stock market or business or whatever.

Its about him being lazy in general, not about property.

He has wasted 40 years for what?? There is 'risk' in everything we do, surely it is better to bet that what has worked in the past will continue to work, rather than do nothing, whilst waiting for the 1 in 100 event to happen.

bye

 

[BillC]

I bought Jan Somers book in 1995 (Building Wealth through Investment Property)
I bought my first Ip in 1996 and have kept buying Ips until 2003
Thanks to Jans books I am now retired and living partly on the positive geared Ips
If I didnt purchase that book I would still be working
I think a lot of investers are trying to become wealthy too quickly and with property its a long term investment (10 years or longer)
Investing in property now
Low interest rates,Low vacancy Rates, Great buying opportunities,Increasing rents,
Investing in other asset classes
Fixed Interest 4.2% with major banks
Shares Volitiliy (sleep at night factor)
Business (Risky)

If you buy an Ip in 2009 what will it be worth in 2019 what will it be rented for etc

 

[andrew_de_a]

Obviously you don't believe that people can have different view points on things.

I think you're one of those people that likes to disagree purely for the sake of it.

Knock yourself out.

 

[crc_error]

Some great stories here, thanks guys and gals!

Are any people here using the lower IR's to now acquire more IP's, even though 12 months ago you were not going to consider more IPs?

 

[sash]

How true!....I see plenty of people who have to wind back each cycle. So of the people on this site have kindly shared their experiences so others can learn.

Slow and steady seems to win the race with minimal fuss and stress.

But again it gets back to the Sommersofts original mentality over property.
Buy property gradually as you can afford it, and let time in the market do its work for you.

Its the gung ho investors who have to do everything by yesterday, and the market timers (who either must have lots of property or no property) that are at the greatest risk.

 

[Bill.L]

Hi all,

Evand, this guy (mainly because of his wife) has bought 2 cheap properties, one a block of land the other a cheap run down house (for $25,000 8 years ago) in the country. Pretty much paid cash for both.

To him, because some type of global meltdown was always around the corner, going into debt to purchase something just couldn't happen. Over the last 40 years this has been exactly the wrong strategy.

You're right about his mindset, it is the the typical D&G type mindset. I just bought it to peoples attention who are falling into the same mindset. Once the mindset changes to the negative, it is hard to start investing for the longer term because you are always waiting, or even worse, when a recession does come along, you can only see worse happening, and "just know" that you were right all along.

bye

 

[evand]

Mate, you've been following just about every post i make lately with an attempted put down (sometimes snide and implying )...i actually dont mind being stalked but you're losing credibility real quick.

I know you do it its because i don't like the real estate industry and you're an agent. That's your problem, your industry, not mine. Get over it.

I have a contrary view on property. Big deal. I have the runs on the board to be able to have that view and air it. (and you?)

I bought my first property in 1988 in my mid 20s and i cant see the next 21 years being like the last 21.

And by the way, this has turned out to be a great thread. I am not anti property for the sake of it, i like to be realistic about the risks i see - long & short term - for investing in property.

I have done very well from property investing and hope to in the future but my success in the past has been from not ignoring risk. I believe that to win the race you first must be able to finish the race.

I think you're one of those people that likes to disagree purely for the sake of it.

Knock yourself out.

 

[want2bewealthy]

Nice post but I have to speak up, a little while ago there was a post by boatboy that showed housing is more affordable in wage terms now than it was in the 50's, I think the 50's? quote me if Im wrong.

it also depends on where your buying because all markets are drastically different.

Also remember that throughout history and cycles people have always said that property was overpriced, look what happened, its hard to believe now that we havent hit the wall but looking back, what were you thinking at the time? property was too expensive and most couldnt see it doing what it always has, we will see this into the future, when we will see it and by how much is a different story but no-one has a crystal ball, there has always been D&G but these folks have always been wrong in the long run,

Im a big believer in property into the future simply because it has done me well in bad times, aswell as good and I believe theres no reason that it wont continue to do so into the future.

My post about a new paradigm in property investing in Australia was not related to the current recession/world financial crisis etc. This will pass, they always do.

As current low interest rates are temporary and will pass. I know a lot of property investors are thanking the world economic crisis for saving their butts in that regard.

I think there is a possibility that a shift (or a long term reduction in prices) will occur because we have never had the level of debt we now have and current housing prices are at never before seen multiples of wages. But the current world economic problems don't help, it will take quite a few years for that stuff to fully clear up i reckon.

The above leads me to believe the levels of debt and the mega high property prices will take a very long time to resolve, if at all and i think there is a slim chance the golden days of property investing could be over.