Buy-and-Hold VS Buy-Hold-and-Sell at Market Peaks

[Starting out]

Geoffw

Hi Geoff,
How are you going with your "thinking out loud?" I've been thinking the same actually, seems like a much quicker way to pay off a PPOR mortage. Even for cashflow instead of working 9-5.
Whats better
1. Sell one or two capital growth IP to trust- make profit equal or greater to your annual income and have the rest of year off to invest or
2. Keep working 9-5, less time to invest
Id rather pay the tax and take option 1. (plus with no mortage)
Regards
Starting out

 

[geoffw]

StartingOut,

You're referring to the thread http://www.somersoft.com/forums/showthread.php?postid=70630#post70630

The thinking out loud was just hypothetical to me, as I don't have any more non-deductible debt on my PPOR.

I achieved that in a different way.

I have a LOC which is used for any deductible stuff- property expenses, courses, books. So if, for instance, I did a Peter Spann course, I would pay the $990 for the course from the LOC, and then pay $990 out of my salary to coincidentally reduce my home loan balance by roughly the same amount. (I'd also be paying other amounts off this loan).

Check out the thread http://www.somersoft.com/forums/showthread.php?s=&threadid=11287

This was a slower way of reducing non deductible debt. It may have been possible to do it in the "thinking out loud" way- but I posed it more as a way to stimulate thinking than as a way I needed to use myself. It may be worth a thought from one of the more experienced people out there.

 

[Kenkoh2000]

Dear Members,

I'm sure that the more experienced successful investors could enlighten us more on the "buy-and-hold" investment strategy and how they refine their investment strategy to improve their loan servicing capacities which oftens limits one investing capacity as a result of negative gearing.

Is positive cashflow properties essential to this successful investment strategy to balance one's growing property portfoilo? How does one minimise its tax liabilities as the property portfoilo expands? How do we about balancing one's expanding property portfolio?

Why do some investors using the "Buy-and-hold" investment strategy succews where others, using the same strategy fails? What are the ususal lessons to learn and loophoiles to avoid, using the "buy-and-hold" investment strategy, to build up one's property portfolio?


Dear Les,

As far as the high interest rate investing enviroment in 1989s is cocerned, what are some of the basic and useful learing lessons that you are learnt that will be useful for a novice investor expanding on his/her property portfolio using the "buy-and-hold" strategy?

How does the high interest rat einvesting environment and low interest rate investing environment affects the buy-and-hold investment strategy? Do we need to modify our investing strategy under these 2 different investing environment and if so what are these required adjustments?

Will greatly appreciate your views and feedback.

Thank you

Regards,
Kenkoh2000

 

[L Bernham]

I dont know if you were still after "evidence" but this article could indicate a slowdown.

Overall property growth has slowed to 1% in the last quarter with units faring better at 2.7%. Must have had some negative houses.

http://www.smh.com.au/articles/2003/09/01/1062403453235.html?from=storyrhs

As Edmund Hilary said "if this aint a peak, I dont know what is"

 

[abcdiamond]

Other quotes in that report show:

Sydney property prices have slowed in the past three months as the median house price rose by just 1.1 per cent

Price growth for houses was particularly strong along the coast, and the Richmond-Tweed and Mid North Coast areas posted quarterly growth of 26 per cent and 19.1 per cent respectively.

Metropolitan areas within easy reach of Sydney were also popular. Illawarra house prices rose 7 per cent and Wyong house prices went up 7.6 per cent

suburbs such as Auburn, Kuring-gai and Kogarah - where house prices fell 0.9 per cent and unit prices dropped 1.2 per cent during the quarter. Inner Sydney was the best performing area for houses, with rises of 4.5 per cent

The president of the Real Estate Institute of NSW, Chris Fitzpatrick, said he expected annual price increases to stabilise at about 10 per cent.
"We've been reading doom and gloom and yet we've seen moderate gains," he said.

And then again my local Brisbane paper is quoting expected growth around here over the next two years at 20+% pa.

So Yes, I agree a slowdown from 30% pa to 20% pa, at least in my area !! But down to 10% in NSW, according to the article.

Again, we look at the right area and avoid the wrong area, same as share investing I suppose.

 

[Kenkoh2000]

Buy-Hold VS Buy-Hold-Sell at Market Peak

Dear LB and his opposing members,

As far as I am concerned, it will be helpful for us to re-look what happened immediately to the property market following the general market peak in 1988 and 1994, when the general market corrected downwards, across most parts of Australia

Although history may not accurately and correctly predict exactly the future market trend, nonetheless, it will provide us with a basic common understanding as to the common indicators of an impendingAustralia-wide market correction in 1989 and 1995. I believe in both instances, the market correction was tirggered by an interest rate increase by RBA. Will the experienced members confirm this and further share their views on this subject, to nelighten us,please?

As far as I am presently concerned, I am keeping a close watch at RBA's interest rate policy. As far as the present market conditions, I see no immediate market bust from where I am right now, although some of the peaking markets in Sydney, Melbourne and to a certain extent, most part so Brisbane appears to be slowing down on their growth. To me, these are healthy signs for the market property cycle. As more investors start to deploy their funds into the Australia share market and out of the booming property market, there is lesser risks and needs for the RBA to increase the interest rate in order to cool down the booming property market, and thus lesser risks of an immediate market bust.

Thus, I am still investing in Cairns and Perth markets at this point in time, haviong sold my 2 properties in the Goldcoast peaking market recently. I intend to re-position myself for the Goldcoast market again in 2007/2008 for its next property cycle peak or/and its uptrend stage.

Just my few thoughts on this subject to share.


Regards,
Kenkoh2000

 

[L Bernham]

And then you get major papers like todays SMH with two page spreads advising people of the best way to avoid ruin in the coming property crash.



They suggest that if you bought before the boom you should be able to survive and they suggest taking profits but warns those who bought in the last couple of years at peak prices to consider selling now or suffer from negative equity.

Why does there need to be a trigger?
All it could take is a lesser proportion of buyers vs a greater number of sellers.

Value is determined by the interaction of supply and demand. The higher the demand:supply ratio the higher the % growth in property values. Unfortunately this has to work the opposite way too.
cheers
LB

 

[bundy1964]

Originally posted by L Bernham
Why does there need to be a trigger?

Because people need somewhere to live?

bundy

 

[L Bernham]

Well thats obvious.
But why does there need to be a trigger.

We're going around in circles here.

Whether or not something is an essential or non essential good is irrelevant when talking about speculative bubbles.

When prices fell 80% in Japan was that because the Japanese realised they didnt need a place to live anymore.

This kind of thinking is what fueled the "property always goes up" myth.

 

[willair]

Astroboy,why do you say from 1988,till 18 months ago the market was flat in brisbane,we started buying inner city in those years most where under 100k all those years ago.The market in those areas has never been flat it stiLL shocks me what people pay these days in brisbane,you and i both know what areas in brisbane will have problems in property but i dont think it will happen in inner city houses sure the amount of units in these areas will be a problem,but if you own a house in these areas i dont think you can go wrong.
good luck
willair....

 

[bundy1964]

IMHO I can't see a mad selling panic happening unless either -

(A) Interest rates rise rapidly.

(B) Unemployment rises to record levels.

(C) There is an oversupply of housing.

(D) -ive gearing is scrapped / changed.

I cant see A, B and D happening soon. C may play a part in appartments in Melb and Syd CBD areas, supply is limited in Adelaide by developers holding land and by the NIMBY's who oppose new development.

A rising share market would attract some money out of property.

bundy

 

[L Bernham]

I cant see mad panic selling happening either.

If that were to happen prices would drop 50% in a few weeks.
I think it will take a good couple of years for a 30% decline.

It wont be a panic. Just people not being able to sell their properties for the prices they want and anyone who wants to sell will need to take a lower price.

Please note I am not taking buyers out of the equation. They will always exist. The number of buyers will eventually get back down to the level they were before the exuberant boom began.

It seems people are mistakingly assuming that "demand" creates "guaranteed capital growth".

It doesnt. Its surplus demand one needs to look at.

LB

 

[spark]

Originally posted by L Bernham
I cant see mad panic selling happening either.

If that were to happen prices would drop 50% in a few weeks.
I think it will take a good couple of years for a 30% decline.

As I wrote in the other topic, I saw it going down, slowly crawling at ~15% a year in Tel Aviv. They called it "a healthy and normal correction" on the first year. Then it went down for another 15% the next year. Whooops! it's already 30%! Just looked at the prices over there on the web, already 10~15% from December 2002.... 40%? 45% down? The problem with the deflation of RE prices is that it is not "felt" as a shares bust, it has other time frame, tempo and momentum. You understand that there is a fall only a year, year and a half after it has started. Nobody sells after a slight "10% correction". Not everybody can sell and lose 20%. But most of them sell happily and easily at -40%-50%. Saw it....

BTW - the newspapers looked the same as here. When they speak of a bubble long enough people start to believe in a bubble. Situations defined as real are real in their consequences.

BTW2 - People also needed a place to live there. They still do.

BTW3 - Didn't see herds of "homeless" people on beautiful Sydney streets.

I think I'll start buying bargains at 2006-7, when it will be commonly known that RE can only lose value

 

[Bill.L]

Hi all,

Seeing that this thread is developing into "the market is going to crash" from the doomsayers, I just thought I would throw in a few numbers for consideration.

" The following comparison is made between the 5 years leading up to 1990 and the last 5 years. The 5 years leading up to 1990 were chosen as a comparison as this was the last major property cycle of any significance. Although Sydney has been chosen the flow on effect is considered relevant across the country.

Sydney mortgage payments as a percentage of average male earnings 1989 81%, today 42%.

Sydney house price increases in the last 5 years AFTER adjusting for inflation 1989 76% today 45%.

Home loan interest rates 1989 18% today 6%."

This is from Raine and Horne in Beenleigh. I admit that they would have a biased view, but the numbers correspond very closely to a property we had in Melbourne during the 80's(and still keep track of).

Sorry to upset the doomsters with a dose of reality, but we need them to keep renting our properties while they wait for the big fall in property prices so that they can purchase.

bye

 

[Billybob]

Originally posted by Bill.L
Hi all,



Sydney mortgage payments as a percentage of average male earnings 1989 81%, today 42%.

Sydney house price increases in the last 5 years AFTER adjusting for inflation 1989 76% today 45%.


bye

Can you supply the raw data for these claims?
Billybob

 

[Nicholas H]

I bet the amount of income tax and other taxs has gone up .. I wonder when we compare the amount of money as % of the income, that is gross or net.

 

[Kenkoh2000]

Buy- Hold and Sell at Market Peaks

Dear LB,

1. While I can agree you the mechanics for a sudden change in sentiment, I am however confident that in those suburbs where there is a high owner- occupancy rate like more than 80%, your scenario is unlikely to happen there as these owners are likely to hold on to their home-houses instead of selling them off.

2. Thus, I think the scenario which you have painted is more likely to apply in those suburbs where there is a high percentage of investor-owned rental properties and where the investors have over-stretching themselves in their investing. Any "sudden" big interest rate increase or change of employment status or the overall economy can thus easily trigger off this domino effect, through the collective change in sentiment and "panic selling".

3. My 2 cents worth.

Regards,
Kenkoh2000

 

[L Bernham]

Prices have been rising across the board regardless of the turnover. If one house in a suburb sell for $500K everyone with similar houses in that street revalues their property to that level in their head.

You cant go along for the ride and then think you're immune from a turn around by just not selling the house.
If prices are falling in surrounding suburbs.It wont work if the people in one particular suburb all decide to hold, on the premise that if no-one sells they can then use the selling price of the last house that sold in the area (even if it was 2 years ago). So you have one suburb that has high values just because no-one has sold. All it will take is one person to sell and bang - all houses have effectively fallen in price.

The property market is not the stock market and it doesnt work in the same way.

 

[Kenkoh2000]

Buy-Hold and Sell at Market Peaks

[Posted by L.Bernham)
You cant go along for the ride and then think you're immune from a turn around by just not selling the house.
If prices are falling in surrounding suburbs.It wont work if the people in one particular suburb all decide to hold, on the premise that if no-one sells they can then use the selling price of the last house that sold in the area (even if it was 2 years ago). So you have one suburb that has high values just because no-one has sold. All it will take is one person to sell and bang - all houses have effectively fallen in price.

The property market is not the stock market and it doesnt work in the same way. [/B][/QUOTE]
************************************************
Dear L. Bernham

I am not sure I can agree with you on this area, though theoretically speaking, your argument may sound (superfically) logical. To me, a paper loss is no real loss until one is forced by circumstances/lending banks to actually sell out the house at a real loss.

As long as one has the ability to hold the property through the down time, the temporary paper loss that we suffer, will over time became a paper profit too, eventually whereby we can effectively cash it out as real nett capital gains for ourselves. I said this from my own actual investing experiences of holding through my properties through a full complete property cycle from the peak-bottom-peak cycle.

As to your comments about a change in the market sentiment, I still think that one's ability to hold the properties through bad times is far more important determining factor than a change in market sentiment especially in those largely owner-occupied suburbs areas.

I am NOT basing my views on hypothetical cases. I am sharing my own hard-earned life experiences and convictions which are actually tested in real lives and acquired through my own actual investing experiences.

Like I say before, your argument will found favour and credence probably in those largely investor-owned suburbs with ovesupply of rental properties and with "over-stretched" investors who are forced to quickly sell off their investment properties because of their inabilities to serivce their investment loans when a change in market sentiment take place in these areas. In such cases, I can agree with you that the change in market sentiment will be a more important determinant factor as the possible risk becomes a reality in the actual market environment.



Regards,
Kenkoh2000

 

[Les]

G'day LB,

I think you are missing Kenkoh's point - he/she is saying that with 80% of owner-occupied homes, the volatility is significantly less than those areas where there is a higher Investor influence.

And I would have to agree.... In areas where there is significant investor influence (for whatever reason - let's say high yield...) then the first investor to "bail" in tight times gets the best deal. If others follow, then the downhill gradient when selling is every bit as steep as when they were buying!!!

But, if investing in areas with a predominant "owner-occupier" (say, lower yield) slant, then there will be a smaller %age of investors "bailing" (and owner-occupiers will just stay...) so the supply/demand curve doesn't get too bent out of shape.

Now, I understand that "yield" is NOT the only reason for investors to invest in a particular area - but it happens to be the rationale I chose to make the point. There can be dozens of other reasons for investors to "prefer" one area over another, as I'm sure you know !!!

It's all about competition, surely. And, if you are one of 20% selling, you'd have to be better off than being one of (say) 70% in a different area - wouldn't you??

The only disagreement I have with Kenkoh would the use of the word "unlikely" in the statement your scenario is unlikely to happen

I would say it is far less likely to happen...... It's all supply/demand when all is said and done, isn't it??

Regards,