Hotspotting or Timing the Market

Hi LisaP,

You didn't disappoint under promise with the number of questions!

I always deliver on my promises! ;)

Hit me LisaP, cant ensure quick response but will respond when I get a chance.

Thanks Bigtone. Apologies for the delayed response - it has been a very busy week for me.

Just as an FYI, I am in the process of formulating a strategy that will provide me with "financial independence" within the next 9 years (before I hit 40). I am starting from zero, but will be purchasing in Sydney within the coming months. While I sometimes kick myself that I didn't start sooner, my life decided to take me on another path, and I now have the good fortune to be undertaking a PhD on this topic - something that I have always been very passionate about. So at the moment, I am living and breathing investing, but it is a topic that I love, so I consider myself very lucky!

OK, back to the thread...

I read some books on investment concepts such as Jan Somers "story by story"? and some good books like "wealth for life" and some terrible but nothing really on hotspot criteria or where to buy.

Thanks for these titles. Are there are other property investment books that you have come across in your travels that might also be worth a look in?

1. Rental Returns 7%+...It is number one...

In looking at rental returns, do you look at the "general" medium advertised weekly rent for the area (regardless of property type), or are you more specific, and look at the rental yield for the property type you will purchasing, such as a 2 bedroom unit. For example, units in the area might be providing rental yields above 7%, but houses might only be providing a 4% rental yield. Is this still acceptable in your opinion?

I think lifestyle town such as Hervey Bay and many in Victoria such as Ocean Grove and Barwon Heads work on different criteria but I won't bore you with that...

Please bore me with the details! :)

3. Wages to value ratio: What is this ratio?

You summed this up nicely in a later post - so no questions here.

when we bought in Mackay in 2004 there were 100 new people moving there every fortnight but the local builders were only producing 20 finished homes a month

How did you find out this information? For example, was it obtained by talking to local real estate agents, property managers, the council, or did you call the local builders or developers in the area?

I think this may also refer to your
little hit and run missions
that you carry out on an area? What does a hit and run mission consist of? It sounds exciting. ;)

I hate housing stats so pretty much ignore those as they compare outdated apples with outdated bananas, prefer to research on a much more micro level

OK, so I'm gathering that you hate housing statistics, especially medium house price stats!! However, you also mentioned that:

if you look in Melb at end of 2006 after 3 years of basically no capital growth the rental yield had improved dramatically

So I'm guessing that you still keep an eye on capital growth by way of medium house price movements? Or maybe by some other means?

I found some properties last year that sold for less than what they did in 2003 yet the rent return had doubled on those properties, that is a boom waiting to happen when the other factors are also right

Good stuff! Do you use RP Data to obtain previous sale prices for a property or some other data provider?

I am much more into "feel" than technical analysis, graphs etc as I am not selling a book or a mentoring program where I can reveal 7 secrets your grandma's cousin never wanted you to know!

My grandma's cousin is going to be very disappointed with this piece of news... :p

Choosing an area to research
OK, one more question that was not mentioned in the previous posts. Given that Australia is such a large country, how does one go about choosing a potential town or region to research? Is it just a matter of throwing a dart at a map, or are you pointed in a certain direction by information in property magazines, federal and state planning documents, or perhaps by trawling realestate.com.au or looking at websites such as investsmart.com.au or by purchasing a "hotspotting" report?

Many thanks.

Lisa
 
a dream of mine is to "retire" at 40and start or run a "Residential Property Trust" that could eventually become listed on the stock exchange, I think residential property is pretty much ignored by institutional investors and would be a good way for many people to diversify their super or other investment. I would love to do the property selecting for such a fund, It would be great fun buying 50+ properties a year :) I tried to get a small fund off the ground in 2004 when my own borrowing and equity was maxed out but thought there were some great opportunities that I wanted to at least buy even if not with my money!. With the fund I was going to buy 5 in Mackay and 5 in Perth which would have been great and could have multiplied from there however I couldn't raise enough $$ and binned it. My dream is a big bigger now!

This is a great goal Bigtone. You might be interested to know that a part of my research covers this, and highlights that the anticipated retirement of the baby boomer generation within the next decade will mean a large proportion of the population will be withdrawing their retirement funds from superannuation investments and shifting them into other investment opportunities, including residential property. I believe that we are on the cusp of this wave.
 
Hi Lisa, Answers to some of the questions below,

:p
I always deliver on my promises!



Thanks Bigtone. Apologies for the delayed response - it has been a very busy week for me.

Just as an FYI, I am in the process of formulating a strategy that will provide me with "financial independence" within the next 9 years (before I hit 40). I am starting from zero, but will be purchasing in Sydney within the coming months. While I sometimes kick myself that I didn't start sooner, my life decided to take me on another path, and I now have the good fortune to be undertaking a PhD on this topic - something that I have always been very passionate about. So at the moment, I am living and breathing investing, but it is a topic that I love, so I consider myself very lucky!

[I]Wish you the best with that, very similar goals to me when I started, I used to think "oh I wish i started earlier" but now i think oh well I loved by 20's had a great life spending all my money living life, 30's got down to business and when I hit 40 looks like i will be able to "retire" and basically do what i want, so had best of both worlds, actually i live and breath investing after finding that was my passion everyday so i have enjoyed my 30's as much as 20's when i think about it, met some great people and i enjoy going to office everyday (nearly). I was living (renting) in a one bedroom sweat box in mentone with train station vista when i started so i know what it is like starting at zero[/I]

OK, back to the thread... deal



Thanks for these titles. Are there are other property investment books that you have come across in your travels that might also be worth a look in?

Not big on books I believe best way of learning is just doing it! So many people are reading and seminar junkies and never do anything, drives me crazy, First night I spent at my partners house, walked into the bedroom and on a massive book-shelve she had every book ever written on property :eek: I said "wtf how many properties do you have" she said just this one, the books are all in storage but she has 7 properties of her own now, John Fitzgerald users the saying "it is the starting that stops most people" think that is so true maybe being a bit hard on books perhaps I really mean is "start the journey and then refine based on your own learnings and readings along the way" if you have not started it is harder to sort out the clay form the ***** as the real life knowledge is not there. So many people go to these seminars and pay big bucks but if they were actual investors already they would know a lot of the stuff being taught is plain wrong and in many cases dangerous.

In looking at rental returns, do you look at the "general" medium advertised weekly rent for the area (regardless of property type), or are you more specific, and look at the rental yield for the property type you will purchasing, such as a 2 bedroom unit. For example, units in the area might be providing rental yields above 7%, but houses might only be providing a 4% rental yield. Is this still acceptable in your opinion?

I have found in most of these towns rental returns are pretty similar regardless of dwelling type, but if you look at a town and see what the typical dwelling is say a 3*1 house and they are selling for around $225k and the rent is $250 for 3*1 it is pretty easy to work out, then I would buy a unit at bottom of market or a character house with some development potential close to CBD ( i won't develop it) that has a yield more than likely well below the ave in the town, these are often underpriced, local builder too busy on new stuff, investors who chase yield and depreciation ignore them and locals often sell them to 'sucker" interstate-rs to build dream homes in new estate. Bit like selling Cal Bung in Elwood to build in Narre Warren! Later when first boom ends these properties have a huge premium as close to town, character house, sub-dividable, often they are the first to boom in second wave of growth later on. So in answer I look at the what the mid range properties are renting for to get town rent yield but rarely buy the mid range properties if that makes sense.
Please bore me with the details!

Answered this briefly in another post, lifestyle towns in my opinion rely of the prosperity of the capital city of the state and the closest major regional towns, if they are economically booming people decide to buy a holiday home or buy a property to "retire to later" that they rent out in the meantime, yields are often poor but people are not buying for investment as such but it increases demand enormously and they buyers are emotionally attached so are not buying on numbers so prices can rise very quickly, I know someone who bought in Ocean Grove and Barwon heads in 2008 as places he might have as holiday homes later. Turned out the growth has been massive and better than some of his "well researched investments" Melb and Geelong are going well so people are buying up there at an amazing rate.


You summed this up nicely in a later post - so no questions here.



How did you find out this information? For example, was it obtained by talking to local real estate agents, property managers, the council, or did you call the local builders or developers in the area?

Talking to all of the above, nothing better than being on the ground and just asking questions after doing internet research before arriving.

Come back to other questions later, need a rest
:D

I think this may also refer to your that you carry out on an area? What does a hit and run mission consist of? It sounds exciting. ;)





OK, so I'm gathering that you hate housing statistics, especially medium house price stats!! However, you also mentioned that:



So I'm guessing that you still keep an eye on capital growth by way of medium house price movements? Or maybe by some other means?



Good stuff! Do you use RP Data to obtain previous sale prices for a property or some other data provider?



My grandma's cousin is going to be very disappointed with this piece of news... :p


OK, one more question that was not mentioned in the previous posts. Given that Australia is such a large country, how does one go about choosing a potential town or region to research? Is it just a matter of throwing a dart at a map, or are you pointed in a certain direction by information in property magazines, federal and state planning documents, or perhaps by trawling realestate.com.au or looking at websites such as investsmart.com.au or by purchasing a "hotspotting" report?

Many thanks.

Lisa
 
This is a great goal Bigtone. You might be interested to know that a part of my research covers this, and highlights that the anticipated retirement of the baby boomer generation within the next decade will mean a large proportion of the population will be withdrawing their retirement funds from superannuation investments and shifting them into other investment opportunities, including residential property. I believe that we are on the cusp of this wave.

I like that, might put it in the prospectus!:eek:
 
Ok part 2 see below

I always deliver on my promises!




I think this may also refer to your that you carry out on an area? What does a hit and run mission consist of? It sounds exciting. ;)

That is when you actually go to the area and do the on the ground research and if it confirms the prior research you buy up and as big as possible, most prolific trips in terms of property numbers were Darwin 2003 when a mate and i bought 15 properties in 3 days and had a great time at night as well ;), another prolific trip was one trip to Gladstone in 2006 where between 4 of us we bought 12 properties in 2 days.

Darwin was funny my mate had a family friend who had moved up there so he took us out to dinner first night " shame u were not here 6 months ago, u have missed the boat", as he was drinking a chocolate milkshake and eating Chinese :eek: at the time we decide his advice may not be the greatest!


Normally if it is a weekend trip we fly in Friday night have a late dinner and a few drinks, Saturday is a massive full on day inspecting dozens of properties and talking to heaps of people, then Saturday night enjoy the nightlife of the town and over dinner summarize the day and decide if and what we will buy, my mate and i had a system that we selected our favorite property and tossed a coin if it was the same which it normally is, he won the coin toss in the first 5 places we bought!! Cost me plenty especially on one property that has gone up 70% and mine which is 2kms away up 5% in same period! Often more people come on the trips now so the coin toss doesn't work so well as they are not keen on playing by the rules!

On Sunday we do the offers and try and crunch the agents, i often put in 4 offers at different prices and different settlement times, the longer the settlement the higher the price, I offered asking price with a $1k deposit and 12 months settlement once in qld and 3 other offers well below that with shorter time frames and they accepted 12 months which was great as bank valued it $125k higher at settlement so i borrowed 100% plus costs only against that property which was awesome and no holding costs for the 12 months except the stamp duty which i had to pay after 1 months but it was refunded from loan later on.

In Mackay in 03 you could smell the money in the town it was clearly on verge of boom yet restaurants and café life was horrible, we went out to Chinese on Sat night, basically it is was 1975 in there, green walls, no chopsticks, menu was basically lemon chicken and sweet and sour. We thought this town is about to boom and has so much potential and café's, bars and restaurants, boutiques etc will follow the money and it did!



OK, so I'm gathering that you hate housing statistics, especially medium house price stats!! However, you also mentioned that:



So I'm guessing that you still keep an eye on capital growth by way of medium house price movements? Or maybe by some other means? Median values as a very very very very rough guide are ok ....... sort of ! It is a very low factor in dozens of ways to access this figure.

There is so many ways to research this info more accurately by comparing apples with apples, previous sales of similar properties in an area (units in the same block very good guide) or in fact of same property are much much better, so many resources to use, Residex,Rpdate, old listings, onthe house, valuations (which i see a lot of) talking to people, finance companies performance, too many to list




Good stuff! Do you use RP Data to obtain previous sale prices for a property or some other data provider? Mostly residex but can access a few different providers



My grandma's cousin is going to be very disappointed with this piece of news... :p

No they will be happy they didn't want u to know!

OK, one more question that was not mentioned in the previous posts. Given that Australia is such a large country, how does one go about choosing a potential town or region to research? Is it just a matter of throwing a dart at a map, or are you pointed in a certain direction by information in property magazines, federal and state planning documents, or perhaps by trawling realestate.com.au or looking at websites such as investsmart.com.au or by purchasing a "hotspotting" report?

All of the above and more, talking to other investors is a great resource as no don't will this forum be, I speak to investors everyday and if they mention a place and it sounds promising i will do my own research and decide from there, also some buyers advocates move around their state depending on which market is moving, they can be a good guide just seeing where they are now located and buying properties, despite all that I miss heaps of opportunities you couldn't possible get them all and you don't need to, just a few good ones and you are set up,

Many thanks.

Lisa
 
I am really enjoying this thread and the honesty within it.
Thanks everyone who has contributed.
Goes to show that some people get it really right
and some people get it really wrong:(

Sounds like you have a group formed now Bigtone and you sweep through arears with cheque books in hand. Good on you
cheers
yadreamin
 
Thanks yadreamin,

Have not really swept through anywhere for a while just buying in capital cities but think some really good regional hotspotting opportunities will open up later this year if not already so could be back in the game :D

Cheers

BT
 
Bigtone,

I agree with your thoughts on Melb, it just seems a bit expensive right now. I have a couple of IP's here and will be looking to purchase again later this year, however I just can't find a lot of value right now.

I am thinking about purchasing in Bris, as i like to stick to capital cities and Bris is comparably affordable right now. You have mentioned that Bris is your pick of capital cities right now, could you expand a bit on the reasons why? When will you be purchasing in Bris, and will you be using a buyers agent or taking a trip?
 
Bigtone,

I agree with your thoughts on Melb, it just seems a bit expensive right now. I have a couple of IP's here and will be looking to purchase again later this year, however I just can't find a lot of value right now.

I am thinking about purchasing in Bris, as i like to stick to capital cities and Bris is comparably affordable right now. You have mentioned that Bris is your pick of capital cities right now, could you expand a bit on the reasons why? When will you be purchasing in Bris, and will you be using a buyers agent or taking a trip?

Hi Rickardo,

I am likely to buy in Brissy at end of year, not sure if i will use BA or not. I often go to Brissy for various things so will do some groundwork on one of those trips. Qld has a good real estate process that is easy imo so might do it myself or combination with BA, will see what suits at the time. Ideally I would be buying there now in early stages of growth cycle but my inaction in NSW means I will pay more in Syd and then more in Brissy because I am 6-12 months behind schedule and the ideal timing of the market. If I had property in Syd already I probably would not bother now but I still think it has a fair way to go so want a couple of pieces of the pie.

My theory on Brisvegas is that it relies on the regional areas of the state much more than Melb and Sydney do. QLD regional hit hard by GFC as heavily reliant on resources that suffered badly in 2008 so the money did not flow through to Brisbane. Now the tap is back on Gladstone and Sarat basin projects etc. Brissy has all the other fundamentals in place. It ticks all the criteria on my list and I am very bullish about Brissy prospects next 2 years.

Please don't rely on me anybody, I could be sitting on a house of cards, do ur own research and make ur own decisions.

Cheers

Bigtone
 
Bigtone said:
That is when you actually go to the area and do the on the ground research and if it confirms the prior research you buy up and as big as possible, most prolific trips in terms of property numbers were Darwin 2003 when a mate and i bought 15 properties in 3 days and had a great time at night as well , another prolific trip was one trip to Gladstone in 2006 where between 4 of us we bought 12 properties in 2 days.

Well, what can I say? I like your style!! :D Those trips sound brillant.

Again, thanks for sharing your insights with the rest of us - and for taking the time to reply to my extrememly long posts. I've learnt a lot from your replies.

Bigtone said:
Wish you the best with that, very similar goals to me when I started, I used to think "oh I wish i started earlier" but now i think oh well I loved by 20's had a great life spending all my money living life, 30's got down to business and when I hit 40 looks like i will be able to "retire" and basically do what i want, so had best of both worlds, actually i live and breath investing after finding that was my passion everyday so i have enjoyed my 30's as much as 20's when i think about it, met some great people and i enjoy going to office everyday (nearly). I was living (renting) in a one bedroom sweat box in mentone with train station vista when i started so i know what it is like starting at zero

It's refreshing to know that I'm not the only one who didn't start property investing in their 20s. Your story sounds very similar to mine, but without the 35+ properties...at this point in time. ;)

Bigtone said:
Not big on books I believe best way of learning is just doing it! So many people are reading and seminar junkies and never do anything, drives me crazy, First night I spent at my partners house, walked into the bedroom and on a massive book-shelve she had every book ever written on property I said "wtf how many properties do you have" she said just this one, the books are all in storage but she has 7 properties of her own now, John Fitzgerald users the saying "it is the starting that stops most people" think that is so true maybe being a bit hard on books perhaps I really mean is "start the journey and then refine based on your own learnings and readings along the way" if you have not started it is harder to sort out the clay form the ***** as the real life knowledge is not there. So many people go to these seminars and pay big bucks but if they were actual investors already they would know a lot of the stuff being taught is plain wrong and in many cases dangerous.

Agree. The hardest part is starting. Although to tell you the truth, my attention only really turned to property investing last year. When I hit the workforce at 22 (some years ago!) I had decided that I was going to achieve "financial independence" by 30; however life got in the way, and instead of going out there and buying my first property, my attention was diverted to my (various) career paths and stock market trading (which I do not love; although it took me a few years to recognise this!).

I see the transition to doing a PhD on investors (from which I have heard so many inspiring stories) and my decision to start my property journey as a natural progression back to what I am supposed to be doing and what I love - property investing - and the other positive is that I'm now back on the road to financial independence.

Bigtone said:
I like that, might put it in the prospectus!

Hoorah!! I've finally been of some value! :p:);)
 
durack.jpg

In 2002 I could'nt buy all of these available if I had double of what I have now.
Why would I go to anywhere else?
A few friends followed my "gentle" persuasions and also bout up there and places like Runaway Bay for similar prices <150. Most bought a second after 12 mths.
The are pretty happy to see me these days for some reason. :cool:
And to everybody else's standard they where anything but "quality" RE.
Your crazy to buy in "Shitsville" was the catchcry.

So I gotta ask, did you not see these Bigtone?
 
I am likely to buy in Brissy at end of year, not sure if i will use BA or not. Ideally I would be buying there now in early stages of growth cycle but my inaction in NSW means I will pay more in Syd and then more in Brissy because I am 6-12 months behind schedule and the ideal timing of the market. If I had property in Syd already I probably would not bother now but I still think it has a fair way to go so want a couple of pieces of the pie.
Hi Tone,

Look me up at that time and I'll show you around now I live up here in BrisVegas...

I'm in a similar boat, my Sydney Northern Beaches development is just kicking off and will probably take 12 months to complete. At that point I'll hold about $3.5M in Sydney props and will be looking to take that equity and buy some stuff in Brisbane. I reckon Brisbane will have moved by then, but I can't buy until the project is complete so I'll just have to wait and then re-assess in 12 months time.

At least I'll have a Sydney portfolio in place which I can let do its thing. Brisbane is looking good and there's a few suburbs I'm already watching and interested in.

Cheers,
Michael
 
durack.jpg

In 2002 I could'nt buy all of these available if I had double of what I have now.
Why would I go to anywhere else?
A few friends followed my "gentle" persuasions and also bout up there and places like Runaway Bay for similar prices <150. Most bought a second after 12 mths.
The are pretty happy to see me these days for some reason. :cool:
And to everybody else's standard they where anything but "quality" RE.
Your crazy to buy in "Shitsville" was the catchcry.

So I gotta ask, did you not see these Bigtone?

Well Done Piston,

I didn't start until mid 2003 so before my time!

I have missed hundreds of opportunities over the years you can't do them all, as long as I get most right I am happy.

Where was your last purchase Piston?

Cheers

Bigtone
 
Hi Tone,

Look me up at that time and I'll show you around now I live up here in BrisVegas...

I'm in a similar boat, my Sydney Northern Beaches development is just kicking off and will probably take 12 months to complete. At that point I'll hold about $3.5M in Sydney props and will be looking to take that equity and buy some stuff in Brisbane. I reckon Brisbane will have moved by then, but I can't buy until the project is complete so I'll just have to wait and then re-assess in 12 months time.

At least I'll have a Sydney portfolio in place which I can let do its thing. Brisbane is looking good and there's a few suburbs I'm already watching and interested in.

Cheers,
Michael

Cheers Michael, Will do.

Looks like you timed the completion of that development nicely, the re-vals should be nice and will allow you to load up on your home town!

Cheers

Bigtone
 
We've never ever tried to time the market.

Just bought as we were able and when the inclination hit, and due to limited funds, have mostly bought lower end.

Did buy one brand new townhouse for $400k early on, and it was a mistake in the sense that I should have bought 2 for $200k each in other areas - would have done better. The $400k property turned out not bad, but only that.

We also had a total fluke when we bought our B&B property for $480k, and sold it 2 years later for $750k. Now, you could say we were lucky, but we took a risk and bought the property for a business purpose, and hocked ourselves to above the eyeballs.

The selling of it was not planned and the timing certainly wasn't from an investment aspect. Lucky? We took the plunge and bought it, had we not done so we wouldn't have made the gain, so I reckon you make your own luck.

The problem with timing the market is no-one has a crystal ball, so you can't really do it perfectly.

Warren Buffett said "I made a fortune out of buying too late and selling too early".

What he means is that he watched for trends, found good value then jumped in, and sold before the end happened - cautious investing.

With property, I think the location and quality of the property in your chosen investing area is important, and if you are able to wait for a slump before buying then do so, but it is far better to buy based on your location, quality of property and overall returns on that particular deal.

I hear loads of comments from people (who don't invest) who say they'll "wait for the right time".....

I never waited, made a few mistakes, and we have come out at the other end rather well.

To qualify this statement though; we've never bought "speculative" IP's such as OTP's, or flips or wraps etc.

Just plain old existing resi properties with decent rent returns and good depreciation using IO loans.

If you buy in "blue chip" areas, you won't see a lot of dramatic drops in prices. Why? Because if it's blue chip it means it is a highly desirable suburb, and while it's desirable their will always be lots of demand for a limited supply.

The best you can hope for there is to buy a distressed sale during a tough economic climate like last year's GFC, but you need to be ready to buy right then, and have access to the funds to buy. How many are in that position? Not many.

For the rest, the game is to get in, buy good value and good returns (for cashflow) and keep on doing it as you are able.

Just before we went to the USA, we sold one of our IP's in Highett for $252k. It was nothing special; a 2 x 1 unit with a SLOG. One of my mates sneered at it - thought it was not "blue chip". Maybe it wasn't.

Bought it 2 years earlier for $205k, and never had a vacancy - same tenants the whole time.

Not a big win really on this one I suppose by some standards, but the market was flat for a lot of that time - and it was still a win ;).

We sold because we had just bought the block (which had no income) and we were very unsure about how the USA would pan out financially for us.

I looked at similar properties in Highett just the other day out of interest, and you cannot find anything similar for under $330k now.

Am I disappointed that I sold? You betcha.

So, something like that, bought at the wrong time, but in a good location and in good condition can still work in your favour.

The big secret there is.....to buy.
 
Just as an add-on the Warren Buffett statement I posted about earlier; I don't think he ever really sells that often; he buys and holds most of his shares from what I can gather.

One of his other famous sayings is/was; "My preferred time-frame for holding a good share is...forever".

I reckon in his case, given his investing style; he would only sell the shares that didn't perform and keep the ones that did.

Whereas, most of the people I know who have shares hold their 'dogs' in the hope they will come back up, and sell their good ones as soon as they go up so they can collect the profits.

These people are actually traders not investors, and not very good traders I should think.
 
Hi Michael,

Care to share suburbs on your watchlist in Bris? I'll be looking for an inner city apartment, 350-400k in a few months.

Hi Tone,

Look me up at that time and I'll show you around now I live up here in BrisVegas...

I'm in a similar boat, my Sydney Northern Beaches development is just kicking off and will probably take 12 months to complete. At that point I'll hold about $3.5M in Sydney props and will be looking to take that equity and buy some stuff in Brisbane. I reckon Brisbane will have moved by then, but I can't buy until the project is complete so I'll just have to wait and then re-assess in 12 months time.

At least I'll have a Sydney portfolio in place which I can let do its thing. Brisbane is looking good and there's a few suburbs I'm already watching and interested in.

Cheers,
Michael
 
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