How many IPs do you have???

[beachgurl]

to respond to GoAnna's comments (I clicked the 6-10 properties), I have just started my mission to agressively buy low cost properties in large rural towns. I will be signing the contract for the 6th this morning, so I guess I am not at 6 yet. Hubby and I just got married and are on the prowl in a big way. We settled on 2 last week, hoping to sign on another this morning and are waiting for a response on another property we made an offer for on the weekend.

Our strategy is low cost housing and trying to pick up each property at below market value. While we know that there are risks in purchasing low end property, our opinion is that there are always people that can only afford cheap housing and that if there are any issues, the insurance will cover anything unexpected. Also, we feel there is lower risk in buying lots of cheaper properties rather than 1 or 2 more expensive ones. If one is vacant, there is less pressure on the budget to cover the mortgage during vacancy.

we were trying to purchase positive-geared properties but I agree that it is very difficult to find these without having to do significant renos or buy in a very small town. The places we have just purchased (and the one we hope to purchase) have rent returns of around 8% so hopefully that means they will be CF+ within a few years.

 

[oc1]

I fell into the trap of buying as many as I could and now it bloody s***s me!

Been actively reducing the number i own/control at a fast rate and turning them into cash. Better to control less (in numbers) but more, say, expensive dirt i reckon. Many starting out probably dont understand the management side of this business when you have a truck load of properties. This year i have spent more time dealing with paperwork, surveyors, builders etc than actually finding deals...

 

[HiredGoon]

No, I am assuming that he has borrowed against the increased equity in his IP's to purchase further IP's.

i.e. his initial loans were lower at initial purchase than what they are now.

He has used the majic of equity!!

His total debt is greater than his total purchase prices.

So he has used debt on something else other than buying houses. Paying off loans for houses? Transaction costs?

 

[Hdb]

$925k borrowed for houses now your loan is $987k.

So did you borrow 62k to make your payments in addition to how much interest you paid? How much interest have you paid?

You did this to make $177k according to your figures (which haven't been tested in the market, of course)

Do you know how high-risk this is?

If you coudn't withdrawal more money in equity to pay your bills, how many years until you go under?

How about we look at your strategy Goon. Put savings in savings account. Lose almost a third of return in tax. Let inflation take the other two thirds of return. Make zilch return on your 'investment'. From what I have heard the Adelaide housing market has been increasing at a higher rate then zilch.

How high-risk is your strategy. How long will it be before you are forever priced out of the Adelaide housing market.

 

[HiredGoon]

How long will it be before you are forever priced out of the Adelaide housing market.

Oh no! I'll just have to keep suffering in my inner suburb 3 bedroom house for less than 1/5th of my wage!

Woe is me, missing out on having to pay ridiculous prices! Boo hoo!

If prices don't come back down to reality for a few years, I'll just never buy. I'm not missing out on anything except stress and a huge interest bill.

 

[Hdb]

Sounds like a good stategy Goon. Your rent will never go up. You will never be tossed out at a landlord's whim and you will have heaps of money left over to 'invest' in that savings account.

 

[wylie]

And huge capital gains!

 

[alexlee]

You know, the US went off the gold standard in '71. From then on, the US had carte blanche to print money and not back it up with anything. If the world was going to collapse, it was at the point Nixon killed the gold standard.

Back then, someone like HG would have said 'the US dollar is now just BS and therefore prices are stupidly overvalued because no one understands that the money isn't actually worth anything and credit has no limits'.

And they would have stopped investing. Every boom would be considered an insane inflation of funny money and every crash would be considered vindication for their views. However, they would not buy in the crash because they would always think it was going to crash more: since they believe the whole system is based on a lie (which it is, by the way) there is NO limit to the downside except maybe world gold supply. So, as the busts run their course (i.e. people regain the fantasy that keeps the whole thing together) HG's former life would complain again that people were going crazy. And still sit on the sidelines, saving into his bank account and renting.

If that person had been in his 20s then, he would now be pushing 60, having 'saved' his money in the bank and renting for the last 35 years. Wonder what their lifestyle would be like now?
Alex

 

[MarkB]

Alex

If that was a long winded way of saying that gold standards are a crock of sh!t then I completely agree with you.

M

 

[HiredGoon]

I have a fairly large chunk of precious metals, which have given me a decent gain. They are a small part of my portfolio which I expect to do not much, but there's a low chance of financial catastrophe where they might explode upwards.

I have shares, all of them up on what I bought them for, including the one I bought in July.

Since July, I have been heavily in cash. You are correct that you would be a fool to stay in cash for ages. But I believe there are a few periods through history when you want to be holding cash. I believe now is one of those times, and I will be putting 100% of my savings into cash (unless a stock I like is really cheap) until next year.

Working on financial years, July 2007->July 2008 I am expecting deflation in RE and stocks. What should I do with my money if I believe that? If I had a higher tolerance to risk I'd be shorting non-bank lenders right now, but shorts are all about timing.

Alex, you think that a debt-backed money supply can only inflate. But if debts don't keep growing you can see something else, deflation.

I believe we are going to enter a deflationary spiral, so I have positioned myself accordingly. Maybe I'll be wrong, who knows?

 

[alexlee]

Alex

If that was a long winded way of saying that gold standards are a crock of sh!t then I completely agree with you.

M

Not exactly. A gold standard is one way of controlling credit, and assuming everyone sticks to the rules, it really will control credit but with lower growth. It's just that the absence of a gold standard doesn't necessarily mean the world is going to collapse because humans are involved.

Scientifically, a bumblebee shouldn't be able to fly. Yet fly it does.

Theoretically, a world currency based not on a hard asset but the whims of the issuing government shouldn't work, but it does.
Alex

 

[alexlee]

Alex, you think that a debt-backed money supply can only inflate. But if debts don't keep growing you can see something else, deflation.

I believe we are going to enter a deflationary spiral, so I have positioned myself accordingly. Maybe I'll be wrong, who knows?

Think about it. What's Bernanke going to do if there is a genuine threat of deflation? What did Greenspan do in 2001? Do you think they call him Helicopter Ben because he commutes to the office in one?

As I've said before, if you have so little unrealised gains in your portfolio that you can just switch in and out of asset classes like you're describing, you haven't been investing for long enough (or your results haven't been good enough).

The property market would have to tank 25% or more for me to BREAK EVEN on a sell now and buy back later strategy. In other words if I sell now and buy back after a 25% drop in prices, I would just break even based on how much I have to pay in agents fees, CGT, etc.

I would have to be expecting close to a depression level hit to justify selling now. I'm a bear, but unlike you, I don't have the luxury of just 'going long cash' because it would cost me too much. Some of my CBA shares have a $5 cost base (no, I didn't drop a zero). I have WBC with a cost base of $12 or so. Can you figure out what the CGT (and therefore, cost of sell now to buy back later) would be?

To be honest it's a nice problem to have. Market tanks: I buy more because I have the equity, and other people won't be able to take advantage of it because they'll be losing their jobs. Market booms: my existing properties go up. Market goes to h*ll in a handcart in a 1929 type crash, I'm STILL going to be better off than other people. Because I have a savings ethic and the knowledge to build it all up again.

What you're wasting most of is time. Time to develop your experience and knowledge by participating.
Alex

 

[MarkB]

Theoretically, a world currency based not on a hard asset but the whims of the issuing government shouldn't work, but it does.

Ultimately, we live in a positive world, not a normative one.

It's a shame that they tend to teach mostly the latter and little of the former at university.

M

 

[tiger]

So everyone that visits, don't forget to click one of those little ads...it helps me out indirectly with IP...and it drives further updates and Version 2a will be coming online within a month or so...

You know you could get banned from the Adsense program for soliciting clicks like that.. on the off chance that Google find out.
Just thought I'd let you know.

 

[HiredGoon]

Scientifically, a bumblebee shouldn't be able to fly. Yet fly it does.

WTF? I guess this means our scientific models are wrong or incomplete.

Theoretically, a world currency based not on a hard asset but the whims of the issuing government shouldn't work, but it does.

Think about it. What's Bernanke going to do if there is a genuine threat of deflation? What did Greenspan do in 2001?

You can't just print money - it is created when:

1. Someone agrees to pay that money back with interest.
2. Someone has to supply the initial reserve savings or purchase the CDO (and with Australia's net negative savings rate, this means finding overseas savers to help us indebted Aussies get even more indebted)

In 2001 interest rates dropped very low and so people borrowed pushing up house and stock prices.

That worked - prices are up, but people have doubled their personal debt levels since then. There isn't the same CAPACITY to borrow more and inflate the supply further. Babyboomers are also starting to think about retiring, rather than saving and investing for their retirement, so there will be further reduction in debt servicing capacity.

You can lower your interest rates to 0% but if assets are going down, nobody is going to borrow to buy them.

The Australian government is not in that much debt and would have the capacity to do so, and give a massive Keynesian boost to the economy taking out public debt to bail out private. But I'd fight that tooth and nail and any government doing that would be punished by a falling currency, which would be good for my precious metals.

 

[alexlee]

The Australian government is not in that much debt and would have the capacity to do so, and give a massive Keynesian boost to the economy taking out public debt to bail out private. But I'd fight that tooth and nail and any government doing that would be punished by a falling currency, which would be good for my precious metals.

Your vote against millions of others. Go ahead and vote, as is your right as a citizen. Better go start a political party of gold bugs to bolster your votes unless you want to be the lone voice in the wilderness.

The govt will do everything it can to prevent the system as it is. I'm betting they're going to succeed. Do you think your job would survive in a meltdown situation anyway?

In any case, personally I'm trapped. I can't switch out of property or shares unless I'm willing to pay a 25% cost. Boo hoo.
Alex

 

[Easton]

Only one IP

But looking for another

 

[alexlee]

WTF? I guess this means our scientific models are wrong or incomplete.

I agree. So what makes you so sure of yours when it's been working for decades?
Alex

 

[HandyAndy888]

Hello all..

OK, lets explain the larger loan than house costs..they are mainly transition related...ie. I didn't want to shell out for stamp duty and mortgage insurance (I don't think I'm paying mortgage insurance, I'll find out soon), so its "inbuilt " into the loan. It is slightly risky, but I think it will pay for itself basically int he short term...

I've read adsense's paperwork and I though it was limited to doing such a thing on the actual website...AND that the add had to be clicked to access some other part of the site...but anyway, I think I will be safe with just one little statement...hopefully...

 

[HiredGoon]

Off topic, but here's the story of the bumblebee thing:

http://www.sciencenews.org/articles/20040911/mathtrek.asp