Thanks Ian, my confidence has taken a beating over the last few weeks but a few fellow forumites, confidence is returning and with your post Ian confidence is here to stay. I will be buying this month and I can't wait.
Chris
Building Wealth in Uncertain Times
- Thread starter Ian Somers
- Start date
Thanks Ian, my confidence has taken a beating over the last few weeks but a few fellow forumites, confidence is returning and with your post Ian confidence is here to stay. I will be buying this month and I can't wait.
Chris
Well, I'm certainly negative on property at the moment and have been for some time, but I come here to get a balanced view on the market and learn from others' experiences. I also feel that I should on occasion put forward a contrary view on some of the topics discussed here. Some of the discussion can be quite misleading IMO, and for those newbies out there reading the forum it could be dangerous to take them on face value and make large decisions based on them. I don't think putting forward a contrary view in this situation this is a bad thing.
Having said all that I did just buy my first home (with a 10%LVR by 'doing nothing'), and I do enjoy some of the interviews done with posters from the site. Again I don't agree 100% with everything that is said, but they do inspire some ideas that may be useful at the right time. I'll happily invest in whichever asset class makes sense to me, at the moment I'm struggling to find any.
I would contribute more to the site, but unfortunately my involvement with a bear site means I'm often chased away by those who dislike bears. It seems there are only two sides.
I agree. There is nothing wrong with opinions from both sides. I believe you need them to have a balanced view. Many of the more experianced posters on here frequently speak of these risky times and warn of the dangers of not having buffers etc. But you have to question the none stop one sided posts aimed at shooting down investing in property. There are other sites for that.
Ian
Thanks for taking the time to write this.
I agree we should be more actively involved in shaping up our future.
I don't believe property has only 2 colours (black and white) as some people think.
IMO there are many shades of gray as well and opportunities are everywhere we just have to reach out and grab them.
cheers
Yep, there can be extremes on each side.
Indeed. If only all forums were so balanced and open to both sides of the argument. This is one area where Somersoft has a definite edge over lesser forums - all viewpoints are welcome here, even those of the gloomers. Nice post Ian.
Dear Ian,
May I be so bold as to answer your last question.
As an avid reader of this forum I feel that I have been taught a lot above and beyond the limited knowledge that I had when I 1st started investing in Real Estate some 15 years ago. This forum should be congratulated for the knowledge base that it has offered to it's members and it's minimal filtering of alternate viewpoints.
My philosophy in Real Estate was simple initially. I invested with my eyes open to the potential upside and downside of my decisions. I never held any more than 2 or 3 properties and kept my LVR to a manageable level. Some would say too conservative to become filthy rich, but I can live with being simply comfortably wealthy. Leverage works both ways.
My philosophy of sharemarket and options trading at the time was less stringent... the leverage was less, but the risks I took were far greater. The sharemarket did not reward my lack of respect and I lost just enough to teach me the lesson of evaluating risk vs reward before venturing forward. In truth the lesson was cheap. It taught me self control.
My primary reason for attending this forum was to get balance. Having had a recent change of sentiment from bull to bear since late 2007, I was keen to see if it was a reasonable attitude to have.
To ensure my balance was fair, I also joined another forum that was less positive on the outlook of real estate.
I have to admit that most of my posts have been cautionary on both this forum and the alternate one which often promoted the buying of shares and/or gold with what seemed rather emotional arguments rather than rationally based facts.
My change of sentiment was cemented when I sold my last IP (we still own our PPoR as it is a "home"), and in late 2008 when I converted my superannuation to cash and set up our SMSF to take control of our retirement future personally.
My sentiment has not altered, all that has happened is that the rest of the world has caught up. I do not see debt as being of any use to myself or others in the near / mid term environment. It will be a millstone around the necks of companies, large and small, as well as individuals regardless of the nature of the assets purchased with that debt.
I have taken note of such revered posters as grossreal and admire their ability to talk frankly of their perspective be they positive or negative.
Best of luck to all in the future. This period may indeed be a buying opportunity for some, however, probably not those who are already up to their necks in debt.
Edit: tidy up and forgotten bit.
To answer your question: Knowledge in investing is not always how to invest... it is sometimes when to invest. My knowledge tells me that now is not the time to invest... especially if * unmanageable debt is a requirement.
* unmanageable = loss of your own employment / partners / large percentage of potential tennants employment has impact on serviceability of debt.
I have read posts of yours on Cracker that dated back to at least 2006. I don't recall seeing you ever post anything bullish.
Hi Rastus2,
I am interested in which assets you converted to cash in 2008? Was it residential real estate or shares?
Had your assets been in shares then the value of your assets may have dropped by up to 50% by late 2008. Had your assets been in residential real estate then the drop in value would not have been as dramatic - and perhaps, for you, it was a good time to sell..
May I ask what you intend to invest your cash into now?? Interest rates are dropping quickly and the return on your cash is getting less and less with each RBA meeting. Having said that, you may still have your capital in tact which far outweighs the benefit of achieving a higher yield on a lower capital base.
Presently due to falling interest rates, many property investors are achieving higher returns from their debt assisted portfolios. Admittedly, values may continue to fall as well and short and medium term growth prospects are bleak.
I ask these questions of you not to challenge your decision to convert your assets to cash (that is an individual decision based on your own circumstances) but to highlight that there are positives and negatives associated with each investment decision....In fact, re-reading the above makes not investing at all seem a very attractive option - perhaps this is why most people don't invest.......
Small world Hdb. and a fair observation. Cracker was my 1st Real Estate forum, and the 1st in which I expressed doubts. I posted bull and bear on sharemarket forums since the 1991 correction. I'd agree, I have not posted much bullish on R/E since 2006.
Your definition of bear is different to mine I guess. I don't judge a single asset class doubt as being a trigger for being a bear ... in 2006 I didn't feel like an outright bear ... just bearish on R/E assets.
I felt that I became an outright bear when both traditional asset classes of shares and R/E seemed too risky for me... sometime late 2007 from memory... Real Estate came first, shares later... I gradually liquidated our family trust share portfolio but did not have the guts to go cash on superannuation till late 2008.
edit: superannuation date is wrong.. was actually late 2007
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Hi Jingo,
apologies... late 2008 in both prev. posts should have read late 2007. Just looked at QSuper website to remind me... lost minimal amount through luck more than skill.
late 2007 I changed option on superannuation fund from balanced to cash.
Kept in cash for most of 2008 and moved funds to SMSF late 08/ early 09.
Family trust was also out of shares before any major hit... once again more luck than skill. Trust now hibernating while SMSF takes over primary asset holding vehicle.
Still feel I've got a foot in both camps with PPoR and cash... options are open, bets are hedged.
I agree, holding cash is not attractive... capital preservation is still my primary goal for the near/mid term however. Asset class would have to tick a few boxes.
Shares : low/no debt , solid assets not based on off book financial instruments (difficult to judge) or over valued property. Long term prospects rather than short term gains.
Perhaps some energy stocks... badly battered and ok for an upswing when this mess is finally over... better than average chance of capital preservation perhaps ?
mate! there is NOTHING wrong with a contradictory argument - but we must remember that arguing on the internet proves we're all idiots.
i have trouble with people posting contradicting arguments with no clear direction as to howthey ended up with said argument. like they've been listening to their grandad warble on with a coffee cup full of sherry while listening to ABC radio talkback.
I really enjoyed reading Ian Somer's post. I read Jan Somer's first book in the early 1990s. I was in my early 20's and investing in real estate seemed like a pipe dream at the time. But something in Jan's concepts must have stuck in my head because eventually, in my early 30s I started investing in residential real estate.
We've taken a real battering with high interest rates and drawing some of our equity down to invest in shares in 2007.
But when I put everything into perspective, I realise that RIGHT NOW, we are enjoying high yields and low interest rates. Take my personal scenario:
Property 1, bought 2002 for $150k
Was worth $450k in 2007
Probably now worth $420k based on what real estate agent told me last week
Current rent $350.00 per week
Current loan payment: $911 (fixed at 7.29% until Nov 09)
Yield is 4.33%
Property 2
bought 2003 for $220k
Was worth $500k in 2007
Now worth $460k
Current rent: $350 per week
Current loan: $1336 per month (fixed at 7.29% until Nov 09)
Yield is 3.95%
Property 3
bought 2007 for $270k
Now worth $350k
Rent: $250 per week (renting to MIL so about $50 per week below market value)
Loan: $1,941 per month (8.44% fixed until Jan 2010)
Yield is 3.71%
Property 4
bought 2007 for $380k
Now worth $440k (bank valued Dec 08)
Rent: $400 per week
Loan: $1,649 (current 5.21% variable loan)
Yield is 4.72% based on valuation
So even though all my properties have dropped in value, the rental yield, if compared to gross value is still within an average range of 4%. And remember that's against the VALUE not the outstanding loans. And I haven't factored in capital growth.
So we're sitting really pretty all things considered. Once our fixed rates expire, our cashflow is going to be positive. We're holding our properties for the long term and so it doesn't matter what real estate prices do in the short term. In fact, should prices drop a little more, we may well be in a position to buy some further properties.
We've taken a real battering with high interest rates and drawing some of our equity down to invest in shares in 2007.
But when I put everything into perspective, I realise that RIGHT NOW, we are enjoying high yields and low interest rates. Take my personal scenario:
Property 1, bought 2002 for $150k
Was worth $450k in 2007
Probably now worth $420k based on what real estate agent told me last week
Current rent $350.00 per week
Current loan payment: $911 (fixed at 7.29% until Nov 09)
Yield is 4.33%
Property 2
bought 2003 for $220k
Was worth $500k in 2007
Now worth $460k
Current rent: $350 per week
Current loan: $1336 per month (fixed at 7.29% until Nov 09)
Yield is 3.95%
Property 3
bought 2007 for $270k
Now worth $350k
Rent: $250 per week (renting to MIL so about $50 per week below market value)
Loan: $1,941 per month (8.44% fixed until Jan 2010)
Yield is 3.71%
Property 4
bought 2007 for $380k
Now worth $440k (bank valued Dec 08)
Rent: $400 per week
Loan: $1,649 (current 5.21% variable loan)
Yield is 4.72% based on valuation
So even though all my properties have dropped in value, the rental yield, if compared to gross value is still within an average range of 4%. And remember that's against the VALUE not the outstanding loans. And I haven't factored in capital growth.
So we're sitting really pretty all things considered. Once our fixed rates expire, our cashflow is going to be positive. We're holding our properties for the long term and so it doesn't matter what real estate prices do in the short term. In fact, should prices drop a little more, we may well be in a position to buy some further properties.
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If only "shelter" was the driver then things would be a lot more sensible. Maybe we'll get back there one day.
Hi Ian and Jan;
In the early 1990's your books Building Wealth through Investment Property and Building Wealth in Changing Times were the first of well over a hundred property investment books that we cut our teeth on. My wife already had one investment property when I met her in the early 1980's and we both have strong views on being in control of your investments.
Everything you have outlined in this thread we agree with over an extended period of time.
The last 16 years up to 2007 was an exceptional time to invest and the rewards were phenominal, paricularly in property.But as someone who has surfed your site and the earlier site for many years before starting to post in 2007, the prolonged good times has also resulted in a myopic arrogant view by some that a severe correction in property values can never happen.
As your well aware, "the easy part of investing in property is the accumulation phase". The hard part is the long term retention of what you have achieved.
We would suggest there are brave property investors and there are old property investors. The next ten years will demonstrate that there are no old brave property investors.
NR
The problem is Non Recourse presents a set of figures and expects them each to play into each other, when the economy is more intricate than that.
The most annoying thing that i foresee is several of the factors becoming true, in which case Non Recourse will claim that he wasnt right on all of them but he was right on some of them.
The other worry i have is someone who is gullable enough to listen to Non Recourse and risk permant impairment of his investment goals (after which Non Recourse just disapears into the Sunset or comes back with a different log in id, afterall he has only been here since 2007, he can yap on this forum to his hearts content, its no skin off his back, he has already set his investment plans in motion according to his beliefs).
Let me give you one possible (and its only a possible) scenario under which listening to Non Recourse could permanently impair someones investment goals:
Lets assume an investor has several properties bought during times of easy credit lending, but this guy is actually reasonably responsible. He knew he could afford them, some of them where negatively geared when purchased, all of them now are either cash flow neutral or cash flow positive.
Lets say they have a reasonable LVR of 65% after capital appreciation (not Non Recourses emphatic do or die 30%).
Lets say the total cost of the portfolio is $200 per week under current variable interest rates + 2% buffer zone.
Now lets say this guy is being influenced by the media and Non Recourses constant do as i say or else, influences him to dispose of the properties.
Now what happens if banks start to revert to their OLD lending practices (they are already doing this on commercial/business loans etc, there is no guarantee they wont do this for new customers on residential loans):
*They start demanding 20% minimum equity
*They start applying old income assertion tests.
This investor by the time he realises capital gains tax on disposal of the properties, transaction costs on disposal and re-entry into property, could find himself transacted out of re-establishing his portfolio in the future.
I again warn fellow Somersofters and others reading this forum: We dont know the future as much as we try to extrapolate the past into the present. However realise that Non-recourse has publicly stated that he is not disposing of his commerical properties (even though he forecasts they may fall up to 70%) merely because of suitable trust structures that may project the asset from creditors, but does nothing to protect the underlying assets from his publicly stated future estimates. This coupled with a forecast drop in the AU$ to 0.38 equals a total asset loss of 82% or a required future return of 550% to restor capital values. Against this logic Non-Recourse says he cant find a better alternative asset that should produce a future loss less than 82%.
The most annoying thing that i foresee is several of the factors becoming true, in which case Non Recourse will claim that he wasnt right on all of them but he was right on some of them.
The other worry i have is someone who is gullable enough to listen to Non Recourse and risk permant impairment of his investment goals (after which Non Recourse just disapears into the Sunset or comes back with a different log in id, afterall he has only been here since 2007, he can yap on this forum to his hearts content, its no skin off his back, he has already set his investment plans in motion according to his beliefs).
Let me give you one possible (and its only a possible) scenario under which listening to Non Recourse could permanently impair someones investment goals:
Lets assume an investor has several properties bought during times of easy credit lending, but this guy is actually reasonably responsible. He knew he could afford them, some of them where negatively geared when purchased, all of them now are either cash flow neutral or cash flow positive.
Lets say they have a reasonable LVR of 65% after capital appreciation (not Non Recourses emphatic do or die 30%).
Lets say the total cost of the portfolio is $200 per week under current variable interest rates + 2% buffer zone.
Now lets say this guy is being influenced by the media and Non Recourses constant do as i say or else, influences him to dispose of the properties.
Now what happens if banks start to revert to their OLD lending practices (they are already doing this on commercial/business loans etc, there is no guarantee they wont do this for new customers on residential loans):
*They start demanding 20% minimum equity
*They start applying old income assertion tests.
This investor by the time he realises capital gains tax on disposal of the properties, transaction costs on disposal and re-entry into property, could find himself transacted out of re-establishing his portfolio in the future.
I again warn fellow Somersofters and others reading this forum: We dont know the future as much as we try to extrapolate the past into the present. However realise that Non-recourse has publicly stated that he is not disposing of his commerical properties (even though he forecasts they may fall up to 70%) merely because of suitable trust structures that may project the asset from creditors, but does nothing to protect the underlying assets from his publicly stated future estimates. This coupled with a forecast drop in the AU$ to 0.38 equals a total asset loss of 82% or a required future return of 550% to restor capital values. Against this logic Non-Recourse says he cant find a better alternative asset that should produce a future loss less than 82%.
1991 to 2002 was a dog.
2003 to 2004 ok
2005 to 2007 awesome
2008 - ? a dog
I certainly don't recall 16 years of phenominal rewards
Hello Ian
Lovely post, well said.
I will be celebrating my Eighth Anniversary participating in this Forum 1st March, 2009.
Even since 2001 I have seen a couple of 'mini-cycles' is as far as the opinions of contributors have indicated. Cycles of opinions, that is.
I bought my first investment property in 1994. We were still recovering from the Recession We Had To Have. The property had been on the market for months, was tenanted, and the owner had been transferred interstate.
With no job I bought that property for the balance of the Vendor's mortgage. The tenants were paying 7.5% gross rental. The Bank lent me sufficient that the rent paid the mortgage. The property is now worth about three times what I paid for it and the rent is just below double.
In 1994 nobody was buying property, let alone investment property. Was I mad?
Since 2001 I have seen the gung-ho radical investors come and go on the forum, the conservative investors decide that shares were better, the 'I'm going to buy a property next year' group, and currently, the nay-sayers seem to have the floor.
But quietly, in the background, the serious investor just keeps plugging away. This may be the first time buyer, or the tenth time buyer, but there is still a lot of activity going on behind the scenes.
Professionally, I have had the privilege of being part of quite a bit of property investment expansion. Since 2003 I have enjoyed assisting my customers to grow and evolve, many from buying one investment property to now planning for and starting small developments. The renovators seem to be on holiday, it's a quantum leap from 'buy, scrub and hold' straight to 'buy, demolish, build units'.
And that, perhaps, is more an indication of the market, and buyer's expectations, than of investor's first intentions. The capacity to buy a calbung, give it the once over and make a silk purse from a sow's ear has been blitzed by cheaper building, higher tenant's expectations and greater disposable incomes.
Tenants now seem to be wanting - and are willing to pay for - all the bells and whistles, and investors are prepared to build five star accommodation to capture that market.
In all this bustle, the basic tenet of 'Buy Houses, Make Money' has been lost in a mish mash of activity.
Property investing is inherently simple. It is not rocket science. Tax, capital growth, internal rate of return .... property cannot read. Property does not care who owns it or who lives in it or which party is in power. Property simply is. It is a real possession in the changing fortunes of time. As Abraham Lincoln said: 'That some should be rich shows that others may become rich, and hence is (a) just encouragement to industry and enterprise'.
It is easy to make excuses. It is easy to fail before we begin. 2008 was not a pleasant financial year for me (or for many others), but one that I would not have missed. As a property investor, I know from experience that if I buy when others are not, if I stay with it, if I do more than just hang in there, then when the market turns again which it inevitably will do, I am that much further ahead.
No times are certain. Building wealth is more than just an attitude, more than just a mind set. Building wealth requires courage, a belief in self, hope and trust in a brighter future, and the willingness to give it a go. No, more than that, the burning desire to succeed. The determination to succeed.
Building Wealth in Uncertain Times is what it is all about. The foundation of fortunes was laid in the Great Depression. The people who refused to accept the doom and the gloom emerged from those dreadful times already streets ahead of the pack.
Where do we want to be in two years, in five years, in ten?
If we do not take action we will be in the same place but in a different time, and another two, or five, or ten years of our precious, and finite lifetime, will have gone for good.
There can be no uncertainty in life. We must trust ourselves, our judgement, and our ability to follow through.
I stopped and got petrol tonight at 11.30pm on the way home from an appointment. Both I and the Service Station attendant were working at that time. For that person, as for me, there is no uncertainty. We are out there making it happen.
To Build Wealth now or at any time, you actually have to do something.
It doesn't have to be much, but it has to be something.
A single bedroom penny dreadful flat in an unfashionable suburb is twenty thousand times better than no flat in no suburb. The penthouse investment at Docklands is a mirage in the sky. Time to get the feet flat on the ground and invest where the ordinary people are, where the ordinary people work, where the demand is. Just do it.
Ooops! Sorry! Forgot where I was for a minute there.
Property Investing: Be there or be square.
Cheers
Kristine
