Da 'Rules' and when to break em?

[NigelW]

From: Nigel W


Greetings All

Like many people I'm finding deals harder to come by now, compared with say 6 months ago.

I'm not saying they're not "out there" but the market has moved in my target areas - good for the properties I have there already but the prices vs returns have deteriorated below the criteria I use for selection. Being in another state from my old stomping ground and investing area also limits my ability to chase down the very best deals.

My question is this - to what extent are people willing to bend their own investment criteria to make sure you're in the market? By way of example, if you're aiming for say a 10% rental return in an area that has historically shown good growth, does it really matter in the scheme of things if you have only 9% rent return because you've paid a little extra up front in light of the growth potential?

I know Jan Somers view, in her latest book which I highly recommend, is that for long-term investors it doesn't matter if you pay market price for a property because in the long run you'll still win out...

I suspect that I may just be suffering from "investor impatience" and "the need to do something". Conversely, due to the fact that time in the market is probably just as important as timing the market, surely one is better off with a whole bunch of average to good deals rather than spending months and months combing the streets for the one killer deal!

My fear is that if I just circle the market like a hungry vulture waiting to pick over the carrion of overstretched investors I may in fact be missing out of some good growth in the interim!

Just my random ramblings, seeking some guidance from those who have gone before...

Thanks
N.

 

[duncan_m]

Reply: 1
From: Duncan M


Nigel,

Great topic!

Someone has moved your cheese. Someone moved my cheese around 12months ago, the combination of the FHOG and interest rates destroyed my pool of potential cashflow +ve properties in Adelaide.

I have since found new cheese.

I think investing in IP's is a constant game of identifying the next opportunity or methodology for benefitting from Property.

I heartily recommend reading the best selling, "Who Moved My Cheese" book, available at most bookstores..


Regards,


Duncan

 

[WebBoard]

Reply: 1.1
From: Glenn M


Nigel,

I also have moved my criteria. I used to look for rental yields at around the 7% mark (besides Capital Growth and other criteria). However, in the current Melbourne market, I'm currently looking at yields around 5.5% for Townhouses or even lower for houses.

Makes it even more attractive for me to look at apartments and units rather than houses at the moment. Otherwise, I'll be too heavily negatively geared.

Will the Capital Growth in Apartments/Units continue upon their current trend?-let me get my Crystal Ball out....

As they say, it is the land content for Houses that appreciates, but at what Cash Flow loss? I must admit, I don't know how people are affording Houses at the moment for Investment purposes without placing large strains on Cash.

Just my ramblings for today.

GlennM.

 

[WebBoard]

Reply: 2
From: Shelly R


Hi Nigel,
Essentially I asked the same question a couple of days ago.Topic was rental returns.
I don't know the answers except one of the
popular gurus reckons its better to be in the game than not in it.
When negative gearing we are all limited by
serviceability.For me it's do I buy two
units with better rents and slower growth
or one house with less rent but much better growth?I'm going with the house.

Duncan,if it's such a great topic as you
mentioned.It would be even greater to hear from some of the pros as it appears many of us are a bit stuck pondering this current situation.
Cheers Shelly

 

[WebBoard]

Reply: 2.1
From: The Wife


Shelly,

Growth or cashflow?, wow that has been chatted about i cant remember how many times, there are three strong camps for that,
1. Cashflow is best
2. Growth is best
3. Both are required

there ya have it, the definitive answer to your question.

This ties in to he "should I break my own rules?" question, who knows?,

Do you want to break your own rules?,

SHould you try something new?

What are your safety boundaries? are you crossing them? do you want to?

Essentially YOU make up the rules, you can decide to change them, or alter them, or scrap them and make a whole bunch of new ones.

But know this, ( and Im sure you already do, as the question asked is so personal, nobody could possibly give you the answer other than yourself).

If you change your rules, be prepared for the consequences of your actions.

The new rules have to be learnt, and if you feel you have grown with the market, and changed, and can see you need to change, then the transition should be less painful.

If you decide to try something brand new to yourself, beware, study your subject first, before you make any huge leaps, and yes, just get on with it, the market waits for no-one. Unless of course...its your style to wait out the rise.

TW
~Life is a daring adventure, or nothing at all~

 

[michele_b]

Reply: 2.1.1
From: Michele B


There's merit in finding a niche and sticking with it, honing process and performance till it's a model of efficiency - lots of investors have become wealthy doing just that.

But then again, the evolutionary process has a way of wiping out specialists. Better in my opinion to be a generalist with the ability to respond and adapt quickly to changes in the environment. Better to be a sparrow than a cheetah.

Michele

 

[Jacque]

Reply: 2.1.1.1
From: Jacque Parker


Nigel, I would say that it all depends on how much time you have to dedicate to finding the best deals. As you point out, however, it takes a lot of effort and in the meantime, you may be missing out. I tend to agree with Jan here, as a long term buy and hold is going to win out for you in the long run. Naturally, you must research your areas and your market but, in the end, the property will ride out the lows and highs of the property cycle. If you intend to sell in within 7-10 years, well then you have a different situation.

I am certainly no expert but I enjoy looking for that elusive bargain (don't we all) and I like to look at a lot of properties before I settle on one. If I pay $5K too much now, what's that $5K worth in 15-20 yrs time, when I may want to sell? Diddly-squat! It's all relative really...

Learn from the great posts of the more experienced people on this forum but certainly don't be afraid to test your own theories and instincts. Have fun! Cheers, Jacque

 

[Mr. Fabulous]

Reply: 2.1.1.1.1
From: Mark Laszczuk


Michele,
I thought your 'better to be a sparrow than a cheetah' line was excellent. My partner and I are just now learning to become sparrows (maybe chameleons are better?) ourselves, and we haven't even bought property yet! The biggest lesson we have learned, especially in the last few months is not to close ourselves off from different strategies, but check out as many as possible. We're pretty sure which way we want to go now (I think!), be watching this space over the next six months or so for further news.

Mark
'no hat, some cattle'

 

[WebBoard]

Reply: 2.1.1.1.1.1
From: Robert Longmore


I have been running my own Investment company for the past 4 years. My investing rules are based loosely around those of Warren Buffet and Rene Rivkin (no i do NOT subscribe to his report, but i borrowed some of his rules)

Rule No 1, Never break the rules.

I have different rules for different scenarios. 1 set for Equities, 1 set for Derivities and another for Arbritage situations. i am currently writing my rule book for the property game, I bought my first IP just last month.

If you deviate from your rules, you have lost control of the situation you are familiar with, and from this point on, you will always be on the back foot.

Opportunities never cease! you just have to learn to look for the ones that fit.

 

[new class]

Reply: 2.1.1.1.1.1.1
From: Anony Mouse


I think the problem is that we forget our rules, a bit like chastity, its gone in the heat of the moment, so
A. a cold shower
B. adapt to the new situation.

"A government that robs Peter to pay Paul can always count on the support of Paul."
Of course, Paul's support is obvious, but it is equally obvious that to rob from Peter to pay Paul will make Peter
very, very angry.
My question is this: "How can you run a good government with a sore Peter?"

 

[WebBoard]

Reply: 2.1.1.1.1.1.1.1
From: Sergey Golovin


I think it is also very important to identify which group are you in, your do not have to tell to us but be clear with your self.

Are you in -

1. Full time work (working for someone) and investing for future (long period of time) and going to be working for let say next 15-20 years. Well, as longer as you did not make any mistakes (or minimum amount) fluctuation of the market will not affect you much. Nice to have Cashflow (most likely it will come from your paycheque) but capital gain is quite important at this stage.

2. In transitional period from working for co. and into self-employment, bit (lot) of both - cash flow and capital gain would be nice.

3. Full time self-employed and full time investor - Long term as well as short term of fluctuation of the market are very important, simply because you need cash flow for your personal and business everyday activities. Cashflow is must and capital gain is icing on the cake, the more you have it the better cake looks.

Once you know where you are in your life cycle, then your investment strategy will change or adapt to that particular situation. Well, hopefully it will.

Serge.

 

[lawsjs]

Reply: 2.1.1.2
From: Jeremy Laws


Michele,
Sparrows have a life expectancy of 1-2 years. Cheetahs on the other hand live for 10-12, longer in restricted game parks. Are you sure you want to be a sparrow?

 

[Michael Croft]

Reply: 2.1.1.2.1
From: Michael Croft


........ and no jokes about bird brains either.

 

[michele_b]

Reply: 2.1.1.2.1.1
From: Michele B


Jeremy
Would that be the African or European sparrow?



Michele

 

[Boyler_Room]

Reply: 2.1.1.2.1.1.1
From: Boyler Room


Michele,

That's Swallow (not sparrow).

 

[michele_b]

Reply: 2.1.1.2.1.1.1.1
From: Michele B


*MB hurls BR into the Pit of Eternal Peril*

 

[Boyler_Room]

Reply: 2.1.1.2.1.1.1.1.1
From: Boyler Room


AAAAARRRRRRRRRRGGGGGGGGHHHHHHHHHHHHHHH

 

[Ian (WA)]

Reply: 2.1.1.2.1.1.1.1.1.1
From: Ian Parham


hhmmmm....'Pit of Eternal Peril'???
ah huh!...you mean the ATO!
...a fate worse than whingey tenants!

;>) Ian