HOw's your investing going at the moment?

From: Rick Kirk


Hi everyone.

Was just wondering how everyone is doing at the present point in time with regard to new property acquisitions.

I've been watching the Melbourne market for years now and have found it increasingly difficult to find anything of value to purchase. (Being that I'm in the +ve cash flow + cap growth nirvana mindset).

Most investors say you need to be counter cyclical.

At the moment it seems that every man, his dog, cat, wife and kids are currently trying to buy property while the stock market eats itself.

So. If you're not particularly interested in stocks (which you probably should be at the moment), but are an avid RE investor, what do you do when the market is the way it is.

(Lets assume you like to invest in your local capital city)..

Just curious to know what seasoned investors do to get ahead whilst the inexperienced can see no-where to go.

Thanks for any discussion..

Cheers,
Rick.
 
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Reply: 1
From: Dan D


It is pretty tough out there, even here in Brisbane, at the moment.

I am still looking for my first IP, after having been saved from a the wrong property in the wrong place by my accountant at the last moment. While we were chatting he reckoned that I should diversify a bit and get a few good quality shares e.g. banks

It is hard to find the right IP ( 'right' will depend on one's goals) in a time when as you say, every man, woman, child and dog are out hunting for an IP.

I'm hoping that the property boom has started to cool off in Brisbane as reported in the Courier Mail today. Though I doubt it.

As they say, if you find the 'right' property in a good location, go for it. Doesn't matter if there is a boom or not.

So on I go :)

Dan.
 
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Reply: 1.1
From: Andrew D


Dan,
I also am a Brisbane person and was just interested to see where your acct said to keep away from and why ?
Enjoy
AD

Stumbling blocks are just stepping stones to the successful.
 
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Reply: 1.1.1
From: Manny B


Hi Dan & AD,

Unless your accountant knows what he is talking about (knows about IPs), I wouldn't treat their opinion as advice... I'll give you an example I encountered, I found a motivated seller in one of my local area (that I invest in) & got him to draw up his section 32 (no agent involved), took it to my solicitor & he said the place is way too expensive, don't buy it (this was 2 yrs ago & I would have secured it then for $155k). Luckily for the vendor (was a neighbor of my dad) he got frustrated (as I didn't buy it) & he rented it out & didn't sell, but this house is now worth around $280k ($125k gain in 2 yrs)... he'd probably thank me for not buying it if he bump into me one day...

Well as you can see, my mistake is that I went to my solicitor to purchase the property & I accepted his opinion as advice... (I must say that I now use his professional/legal knowledge & leave the financial advising/number crunching side of things to myself)... I since bought 2 IPs & haven't asked for his financial opinions &/or just ignored them...

Cheers,

MannyB.
 
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Reply: 1.1.1.1
From: See Change


Another example

I was looking at buying IP's several years ago and several people including my accountant said PAY YOUR OWN MORTGAGE OFF FIRST ....

Unfortunately I listened until I sat down about three years ago and worked out where I was going , which was no where fast. Since then I rely on myself to make decisions for me . I listen to others , but am now to a point where I feel confident in my own ability to ignore the advice of "experts"

I have almost tripled my equity in the last three years and now have a PPOR that was mortgage free until I started using equity in that to fund deposits for IP's.

Shares may be cheap at the moment. There is always the chance they will get cheaper.

I would also be curious to know what IP your accountant thought was inappropriate.

see change


it's better to be guided by your dreams than your fears
 
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From: Dan D


AD and Rick,

I took the accountant's advice because he's been investing in property, both residential and commercial for donkey's years. If he's so successful why is he still working? Well, like me, I likes his job :)

The accountant basically reasoned with me as follows:

1. Property is 20 years old; so no capital deductions as for properties built after 1987. Why not get something for free from the ATO when it's available?

2. Even if the ATO freebie is not as important, and an older property is bought, that is fine, as long as one doesn't buy one that is already in mint condition and this is reflected in the price. Buy a property that needs a bit of work in a locality with good historical capital growth, and get instant capital gain on completion of renovations. Make sure it is priced right.

3. The property I was about to buy, was in an area that had historically low capital growth, was predicted to continue that way, was overpriced ( given that it has had a total makeover and like new), and the best house in the street in a not great suburb 20 km away from the city. Granted it had all services and other good things that would make it a good renter, but not good in terms of capital growth.

4. Given that I am negatively gearing it, it just didn't make sense because of its low capital growth prospects.

I think he was right.

This would have been my first IP, and I have every intention of making it my one and only IP because I want to concentrate on building up my own business. This was another reason why the goal should be capital gain, so that even if my business does not run as well, I'd still have made at least some small provision for my retirement.

But even if I had intended to become the owner of multiple IP's so that I could retire on that passive income ASAP, it would still have been necessary to go for as high a capital gain as possible to enable the purchase of the next IP based on the equity of IP no.1.

So, for me, this was not the best choice to have made.

I've learned a lot from the experience.

With a better understanding of how best to achieve my goals, I am back looking for the 'right' IP for me.

I try not to take advice just from anybody for no good supporting reasons. I think this accountant knows what he's talking about.

Dan.
 
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Reply: 2.1
From: See Change


Dan just a thought

My personal opinion is that the areas that are historically areas with good Cap growth have already moved significantly in the current cycle.

The areas that haven't moved in the current cycle are the areas that are the lower Socio economic areas which often provide the best return. These areas tend to move after other areas but they DO move. One area where I'm investing in at the moment is that type of area . I'm being told by many experts ( including the agents I'm buying off ) that its an area for good return , but no cap growth.

I find that interesting because when I look
at sales figures for the last 30 years, It HAS GONE UP.In fact its just about doubled in each of the last property cycles. It also currently gives gross returns of over 10 %.

I'll be interested to see the value of my portfolio in the next 2-5 years time. In the mean time it's paying for itself and a bit more.

see change

it's better to be guided by your dreams than your fears
 
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Reply: 2.1.1
From: Rick Kirk


Hi all,

Interesting reading although more about the accountant advice than the current investing strategies. (I know it's extremely difficult to not let other opinions sway your own).

It's interesting to hear about those lower socio-economic suburbs. I've been having similar thoughts of late and have found some properties that produce good returns and are relatively cheap to get into but I've steered clear due to doubt and uncertainty.

I've also found props in country areas that are highly +ve for very little money in but again there's the doubt.

I have the problem of not being able to weight my need for cash flow vs my need for capital growth. At this point in time I could well buy 10 of these properties and at least get my spouse financially free from employment but I have constant doubt about the future of those properties and the possible lack of future borrowing capacity that may result from a lack in capital growth.

Maybe I'll get a 20 sided dice, get 10 -ve city properties numbered 1-10, and 10 +ve country numbered 11-20 and roll the dice till I use up my investment capital :)

Hmmm. Now there's a frightening method of investing :)

Enough for now. Words of wisdom and encouragement are much appreciated :)

Cheers,
Rick.
 
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Reply: 2.1.1.1
From: Glenn Mott


Interesting thoughts about the low socio economic areas. In Perth, most of
these suburbs are located at least 15km away from the CBD.

After looking at median price history over a 30 year period in 10 year
increments, it appears as though properties < 5km from the CBD have at least
doubled in each increment versus properties outside this ring having doubled
between 1971-1981, but since then recording slower growth. This reminds me
of a study done in Sydney going over the same theory, being that property
within 5km of the Sydney CBD had been responsible for most of the gains in
the median price for Sydney. Eg, if the gain for suburbs < 5km from the CBD
was 20% per annum and the gain from suburbs in a ring from 20-25km from the
CBD was 5%, then the median price for the suburbs combined would be
12.5%...not giving a true indication of the gains realised in the city and
over-representing the outer ring.

In Sydney, long term gains for the whole metro area is pretty well
guarenteed with a high percentage of all new Australians moving there
shortly after arriving in Australia together with Sydney being a hub for
industry. However, for all other cities, I wonder whether the outer lying,
lower socio-economic areas are in line for some growth or we are seeing the
beginning of a shift to the beaches and CBD that may result in the outer
lying areas being left in the wilderness for many years to come??

Regards

Glenn Mott


-----Original Message-----
From: propertyforum Listmanager
[mailto:listmanager@bne003w.webcentral.com.au]
Sent: Friday, 9 August 2002 1:54 PM
Subject: HOw's your investing going at the moment?


From: "Richard Kirk" <rick.kirk@atosorigin.com>

Hi all,

Interesting reading although more about the accountant advice than the
current investing strategies. (I know it's extremely difficult to not let
other opinions sway your own).

It's interesting to hear about those lower socio-economic suburbs. I've
been having similar thoughts of late and have found some properties that
produce good returns and are relatively cheap to get into but I've steered
clear due to doubt and uncertainty.

I've also found props in country areas that are highly +ve for very little
money in but again there's the doubt.

I have the problem of not being able to weight my need for cash flow vs my
need for capital growth. At this point in time I could well buy 10 of these
properties and at least get my spouse financially free from employment but I
have constant doubt about the future of those properties and the possible
lack of future borrowing capacity that may result from a lack in capital
growth.

Maybe I'll get a 20 sided dice, get 10 -ve city properties numbered 1-10,
and 10 +ve country numbered 11-20 and roll the dice till I use up my
investment capital :)

Hmmm. Now there's a frightening method of investing :)

Enough for now. Words of wisdom and encouragement are much appreciated :)

Cheers,
Rick.



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Reply: 2.1.1.2
From: See Change


Rick

Next step after I have finished my current buys will be to look at areas that I think will be good Capital growth areas. Within these areas I will be looking for properties that I can develop further down the line.

Brad Sugars talks about a wheel structure where you package some cash flow properties with a Growth property , with the cash flow paying for the other.

This is basically what I'm doing , but I'm not necessarily buying them at the same time because of where I perceive different sections of the market to be. I wouldn't buy in sydney at the present , but at some stage in the next five years I will. Then I'll have a trust with four cash flow properties to package with that property and pay for the short fall in cash flow. Later on when that property has had it's cap growth I'll draw out some equity and use that to buy some more cash flow properties ....

see change

it's better to be guided by your dreams than your fears
 
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Reply: 2.1.1.2.1
From: Andrew D


I'm with you there SC, I think the idea espoused byb Brad Sugars is quite good for me. At the moment prices in "desirable" locations are high. Maybe they will go higher but I am buying houses that pay me money and have grown in value. eg. Bought one for $64500 rents for $150/week only 3 months ago and if I wanted to sell it tomorrow it would cost you in the $80's for it. However I look at it that ain't bad maths (just bad english).

Rick I also have had the confusion of country areas. I decided to buy one and rent it out and just see what the market does. I don't think it is roaring along and on the returns (11.3% from memory) even if they creep up still time to buy on good returns.

Whichever way you go make sure you feel comfortable but as I found out the water is deep but there are always helping hands to help you swim.

Enjoy
AD

Stumbling blocks are just stepping stones to the successful.
 
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