In those cases they have pretty much translated their optimism with action and over extended themselves.
There is the key-phrase right there.
I like to blend the optimism with caution as I take action. Letting the emotion and the market sentiment take control is where the danger is and the in-experienced get caught out. It's sad.
But instead of coming on here and saying "it's all D&G - don't buy anything for god's sake", we should be saying "look out ahead - there are rocks, so steer to safer waters as you go, and here is how you can do it".
To simply state that it is too dangerous to buy doesn't cut it for me. I've never listened to people who say "you can't/shouldn't do it" in any aspect of life. Instead, I take it on board - thanks for the warning - try to be aware of the danger or downsides and then proceed.
Like in golf; look for the bunkers and water hazards, and then aim for the safe areas as you proceed to the flag.
In your case i don't think you have been active in the property market for quite a while. Just as i havn't.
Our last purchase was our next PPoR block of land which settled in Aug 2007. It was a deal too good to refuse from our neighbor, and we did have to extend ourselves a bit, but it was a very calculated risk. This was all paid for using equity - borrowed funds - with no rent return, so our servicability was shot, and so was a good chunk of our cashflow. Still had a good deal of equity left, but couldn't use it. That's where the businesses mindset came in. So we haven't been in a position to buy in those two years, just decreasing debt and consolidating, and when we got into a better position, we bought a business instead last year - more cashflow.
If you were really optimistic, wouldn't you be buying up?
If we were looking at buying property, I would be currently buying, yes. I would love to jump up to the next price-point of investment properties that have taken a hit - around the $700-$900k or so mark, with the future development/add value factors, but the rent returns are pitiful at this level, and we simply don't have the servicability power to hold it until the future cap gains and add on gains are realised.
Now, having said that, as you know; my first criteria is both rent yield and tax deductions/deprectiation, then cap gain after this.
So, whether or not the cap gain happens sooner or later, the cashflow would support the purchase and I wouldn't have to be concerned about any possible further drop in values or slow period for growth. The D&G becomes irrelevent in this case.
Of course, I would also be looking for an area that exhibited all the signs of cap growth in the near future - new and improving infrastructure such as better roads, new schools, parks, hospitals, Bunnings (there's a thread about that now somewhere), all the franchise take-away food shops, Coles etc. They don't build all this stuff where people don't look like moving to.
But as you know, we are currently buying a business, and until that is put to bed and we can re-assess the cashflow and servicability situation, our property escapades are on the back burner. It's frustrating, but so is having not enough cashflow to enjoy the fruits of the labour. Tired of that.
If all goes well, we will look to do something mid next year after the new PPoR is finished being built - a bit much on the plate right now unfortunately. I'm sure there will be a few deals floating around then.
