Building Wealth in Uncertain Times

[steveadl]

The D&G'ers will always find reasons not to buy property guys. Not referring to you here Evan as I know you have properties.

The reason in 2007 was because the yields were terrible, now that you can get great yields the reason is because the whole market is going to collapse, next year the reason will be because......

There were reasons in the 70's, 80's and 90's. There were plenty of reasons why the D&G'ers would not have touched the properties I bought, or the business I took over, or the shares I've bought or the......

There will always be plenty of reasons to not invest in the future, as well as plenty of reasons to invest - but don't expect the hardcore D&G'ers to change their ways.

I think Ian's initial post was rather timely and very wise. Thanks Ian.

 

[crc_error]

I think if your ready to invest into a IP, then do it today.. dont listen to 'expert' advise from the media.. property is a long term investment, so buy it and forget about it for 10 years..

and make sure you can hold it for the whole duration, so dont over extend.

You will never 'know' when is the right time to buy and bottom pick next booms..

IP is great now, yield in many cases is cash flow neutral

 

[evand]

Guys, don't forget these very low interest rates are temporary. Normality will return when the GFC eases and/or inflation starts to rise.

Yes, i know you can fix but you will have to reset into higher rates at some time. Probably much higher.

Rental yields are still pretty low, its just that rates are lower at the moment. We need to always look at the bigger picture. As you say, its a long term thing so long term impacts need to be taken into account.

IP is great now, yield in many cases is cash flow neutral

 

[crc_error]

so prehaps we need to do our sums on a 5 or 7 year fixed rate? not the tempory low variable rate?

 

[evand]

That would be a big risk with Westpac 7yr fixed at 7% at the moment. You could be paying over the odds for a while and back to neg gearing.

Fixing rates is like a bet between the bank and the fixer about the amount & direction of rates. The bank usually wins.

so prehaps we need to do our sums on a 5 or 7 year fixed rate? not the tempory low variable rate?

 

[TheAnalyst]

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

Knock yourself out.

I have another choice, "I think you're one of those people that likes to invest purely for the sake of investing without other considerations". You see the bear trend there but still jump on the bear for the sake of using your money. Investment is hard and difficult. You have to apply your wisdom. Last few years, a lot of people invested for the sake of investment and burnt totally. I like property and invest in property. But I do hope new investors take a balanced view - this is my whole heartedly sugguestion.

 

[andrew_de_a]

i think your completely wrong with your 'choice' but i dont really care what you think.

 

[crc_error]

That would be a big risk with Westpac 7yr fixed at 7% at the moment. You could be paying over the odds for a while and back to neg gearing.

Fixing rates is like a bet between the bank and the fixer about the amount & direction of rates. The bank usually wins.

No, what I'm saying is work our your sums on the higher figure, and if all adds up, make your purchase.. dont rely on 4-5% interest rates to get you through.

If you are tight, you would want to keep a close eye on when rates turn around.. I would say the first rate increase would be a good indicator.

 

[evand]

Mate, i'd love for you to tell this to all the FHB's going in now. That's gonna be fun.

As to the second paragraph, fixed rates increase as variable rates increase. So, its hard to benefit. But that's the price you pay for reducing risk, i suppose we cant hve it both ways.

Also, a lot of people stuck on high rates at the moment got caught out exactly doing this. they fixed as rates increased and now are up for s$%# loads in break fees to get out.

The banks rarely lose a bet.

No, what I'm saying is work our your sums on the higher figure, and if all adds up, make your purchase.. dont rely on 4-5% interest rates to get you through.

If you are tight, you would want to keep a close eye on when rates turn around.. I would say the first rate increase would be a good indicator.

 

[natecv8]

Guys, don't forget these very low interest rates are temporary. Normality will return when the GFC eases and/or inflation starts to rise.

Yes, i know you can fix but you will have to reset into higher rates at some time. Probably much higher.

Or you could pay down some debt, increase cashflow and let yields take over. Not everybody is at a 90% LVR and having just come out of 9% interest rates in 2008 a lot of us are well aware of this issue. The higher rates will likely just increase yields down the track as FHB's can't keep buying cheap property with no deposit for less than the average rent.

One of the great benefits of this forum is the ability to read and take on board some of the incredible information that is provided by those with a real knowledge of property and real experiences to provide. What I am sick of seeing is the same old people popping up in every thread to tell how they sold in 19xx/200x because everything is going to hell. They claim to have all the experience in property and have taken all the benefits that the market could possibly provide, before going into their predictions about never before seen conditions which will wipe out the property market.

It's not that I don't want to hear about this incredible knowledge that they alone seem to have uncovered. It's that the information is generally in the form of a bunch of boring rhetoric (such as property to income multiples) which have been disproven over and over and which are so tenuous that you question the sanity of someone who sells a well performing property portfolio after decades in the market on the back of such weak data.

 

[evand]

How many people are in a cash position to pay down debt? Not many. Anyway, if you do you have opportunity cost of that money doing squat to consider.

The rest of your post is just your opinion. Everyone has one and your quite entitled to one too.

I don't think anything has been disproven. It has been debated tho. I don't think its 'boring rhetoric' either. Some people have the runs on the board on this forum, some have theory.

Or you could pay down some debt, increase cashflow and let yields take over. Not everybody is at a 90% LVR and having just come out of 9% interest rates in 2008 a lot of us are well aware of this issue. The higher rates will likely just increase yields down the track as FHB's can't keep buying cheap property with no deposit for less than the average rent.

One of the great benefits of this forum is the ability to read and take on board some of the incredible information that is provided by those with a real knowledge of property and real experiences to provide. What I am sick of seeing is the same old people popping up in every thread to tell how they sold in 19xx/200x because everything is going to hell. They claim to have all the experience in property and have taken all the benefits that the market could possibly provide, before going into their predictions about never before seen conditions which will wipe out the property market.

It's not that I don't want to hear about this incredible knowledge that they alone seem to have uncovered. It's that the information is generally in the form of a bunch of boring rhetoric (such as property to income multiples) which have been disproven over and over and which are so tenuous that you question the sanity of someone who sells a well performing property portfolio after decades in the market on the back of such weak data.

 

[MichaelW]

No, what I'm saying is work our your sums on the higher figure, and if all adds up, make your purchase.. dont rely on 4-5% interest rates to get you through.

That's what I did in this post.

i.e. 5% yield + 3% inflation rate growth = 8% pa return from property.

If we assume interest rates at 8% then it works given the impact of time value of money. i.e. That 8% expense cost depreciates in time value of money terms (given its on a fixed amount), yet your growth and rental yield are indexed to inflation.

Today's yields of 5% odd suggest this is not some arbitrary "peak" in prices, but a justified supported valuation given realistic long term average interest rates. Its not a bubble, its an appropriate equilibrium price. 5% is a very good yield!

Cheers,
Michael

 

[crc_error]

As to the second paragraph, fixed rates increase as variable rates increase. So, its hard to benefit. But that's the price you pay for reducing risk, i suppose we cant hve it both ways.

Also, a lot of people stuck on high rates at the moment got caught out exactly doing this. they fixed as rates increased and now are up for s$%# loads in break fees to get out.

The banks rarely lose a bet.

yes, but your not trying to get the lowest fixed rate, your waiting for the tide to turn, and get in on the first step.

Fixing rates isn't to save money, its risk management.. and if you own 10 IP's, each rate rise can kill you, but if you fix, you will always maintain the same cash flow.

 

[chilliaa]

That would be a big risk with Westpac 7yr fixed at 7% at the moment. You could be paying over the odds for a while and back to neg gearing.

Fixing rates is like a bet between the bank and the fixer about the amount & direction of rates. The bank usually wins.

Evan with respect, this point is invalid. Who cares whether the banks wins or not, its not about trying to 'win' against the banks.

If an investment strategy is dependent solely on the movement of a couple of % points in the lending rate, then in my opinion its a pretty marginal investment anyway and should be avoided.

The point SHOULD BE, can i find any attractively priced property that, with a fixed interest rate of 7%, can stack up on investment criteria. Are there any alternative investments within my area of investment knowledge that should provide a better risk return outcome?

 

[BoatBoy]

Fixing rates isn't to save money, its risk management.. and if you own 10 IP's, each rate rise can kill you, but if you fix, you will always maintain the same cash flow.

Sounds so logical, but some just cant understand.

Dave

 

[Rob Williams]

Sounds so logical, but some just cant understand.

Dave

Sad but true.
Those of us with sound risk management strategies will just have to keep plodding on while the rest continue to try to "bet" with the banks on rate movements.

 

[crc_error]

you pay more for fixed rates, just like you pay for house insurance.. consider it as a insurance policy.

 

[evand]

I meant it in the sense that the bank usually benefit more than the borrower on fixed rates. Of course, not to be taken literally as a bet. Or a win.

Evan with respect, this point is invalid. Who cares whether the banks wins or not, its not about trying to 'win' against the banks.

 

[evand]

Yes, i realise all that SANF stuff but don't think a lot of investors don't fix rates to save money and improve cashflow.

My point was as happened before the last turn around in rates a lot of people got spooked and fixed at the sign of a few increases and the banks fixed rate was a bit above the variable as it is now (except now its quite a bit).

Problem is rates didn't continue to increase, they turned around and went down and people got caught out paying quite a bit more then they should be paying now on variable.

I wouldn't exactly call that great risk management. Or cashflow management. Or very logical.

I believe staying on variable is usually ok as it sort of averages rates out over time and that average is pretty favorable.

I have fixed previously but i'm very selective about when i do.

yes, but your not trying to get the lowest fixed rate, your waiting for the tide to turn, and get in on the first step.

Fixing rates isn't to save money, its risk management.. and if you own 10 IP's, each rate rise can kill you, but if you fix, you will always maintain the same cash flow.

 

[sparky23]

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.

No definetly not emotional, just acquired too much too quickly as we got into it later rather than earlier in life. Just wish I'd learnt about property in my teens and bought my first property by 20 or 18 as some are doing.

The numbers were working and there was plenty of research, number crunching, homework and logic (I am a 100% logical thinker) until I had no work and those rates shot up, then a development took too long to complete, banks stuffed us around etc.

So I have learnt that despite the best laid plans these things if they all come at the same time can pull you down. I will be better prepared in future.