I can smell the fear

[HandyAndy888]

There is a focus here I feel, on future growth based on economy only. But consider this. At a minimum, the growth will be at inflation rates. As inflation rises, so does the value of your property (I think this is how it works). This means, that there is virtually zero chance of doom. The only possible negativity to come out of future values is a lack of substantial growth. This recession we are in at the moment, it's part of the cycle, as occurred before. I think D&Gers really need to get a grip, go out and buy an IP. Maybe, just maybe, they may become believers....

 

[Token Funder]

But consider this. At a minimum, the growth will be at inflation rates. As inflation rises, so does the value of your property (I think this is how it works).

 

[HandyAndy888]

Well....

A house today is $100,000. If inflation is 4% for the year, in essence, it is worth $104,000, since the perceived value of the property goes up. I could be wrong here...

I suppose I am saying a new car in the 60's cost a few thou, why does it cost so much more now? Inflation, and if things cost more because of it, so will property. Just a thought...

 

[Token Funder]

Well....

A house today is $100,000. If inflation is 4% for the year, in essence, it is worth $104,000, since the perceived value of the property goes up. I could be wrong here...

I suppose I am saying a new car in the 60's cost a few thou, why does it cost so much more now? Inflation, and if things cost more because of it, so will property. Just a thought...

Who tells the borrowers what the CPI figure is so that they know how much extra to pay each year? Is there a mailing list?

 

[JamesGG]

I find it interesting that those who consider themselves to be optimists, are the same people who advocate holding property during a flat market just to avoid transaction costs.

Is it just me, or is that a negative mindset?

Someone mentioned earlier that there could be a cost of around 20% in order to sell non-performing property.

Now perhaps I am being a little optimistic here, but surely 20% is a small target in terms of future returns in a better property, or even another asset class... no?

 

[Propertunity]

.... those who consider themselves to be optimists, are the same people who advocate holding property during a flat market just to avoid transaction costs.
Is it just me, or is that a negative mindset?

I think that one of the problems James is, that no-one knows for how long a flat period will be for or whether or not what is being experienced is just a blip on the graph................only with the benefit of hindsight can this been seen.

Just as in recent times - possibly even as little as 3 months ago, some people on here and the media for that matter, were advocating sell, sell, while the govt. is handing out free cash to the FHBs and artificially propping up the market before the market crashes post 30 June.

Now we see the market actually rising, FHBs, while still represented are less so and investors are back in propping up the market. Auction clearance rates are at an all time high (and this is in Winter - a traditionally slower time for RE). It would appear that the market is on a rise (along with fixed IRs).

 

[JamesGG]

I think that one of the problems James is, that no-one knows for how long a flat period will be for or whether or not what is being experienced is just a blip on the graph................only with the benefit of hindsight can this been seen.

Oh, absolutely. Hindsight is a beautiful thing.

To clarify my post above; I don't advocate selling for the sake of selling, by any stretch of the imagination. I just find it puzzling that people will say that they *expect* a zero return for a sustained amount of time, but don't want to change that situation for fear of having to pay a real estate agent, or the tax office...

 

[Propertunity]

I just find it puzzling that people will say that they *expect* a zero return for a sustained amount of time, but don't want to change that situation for fear of having to pay a real estate agent, or the tax office...

Yes I understand what you are saying. I also don't understand it when people say they *expect* zero capital growth but will live with that if they can get a decent yield
Geeze, you'd get better yield in a Term Deposit without the tenant hassles if that was your expectations surely?

 

[chilliaa]

To clarify my post above; I don't advocate selling for the sake of selling, by any stretch of the imagination. I just find it puzzling that people will say that they *expect* a zero return for a sustained amount of time, but don't want to change that situation for fear of having to pay a real estate agent, or the tax office...

because what we expect and what might actually happen could be two different things. What happens if our expectations are wrong????

The point is for many of us, our property portfolio isnt costing us a dime, but is creating CASH FLOW, and even if we assume an increase in interest rates of a couple of % to restore us to some form of normal interest rate environment the portfolio is still generating CASH FLOW, but at a lessor rate (depending on your fixed/variable components).

We realise that we cant time entry and exit points with a high level of precission (especially after tax and transaction costs are taken into account).

We do know however that:
1) At this point in time property is not seriously over valued ( even for a buy and hold investor, a seriously over valued market is always a justification to sell even with transaction costs, we dont know what the catalyst will be to restore the market to a 'normalised value' only that eventually there will be one)
2) Over time our rents will still go up, so our CASH FLOW will be increasing.
3) Property prices dont trend by a fixed % each year.

So recognition of our inability to perfectly time entry and exit points, means that so long as the asset class is not seriously overvalued, inaction can be more profitable over the long term, than action.

 

[HiEquity]

A good thought provoking post James

However your 20% figure is a little "light" for some. Transaction costs can be considerably more than that! Especially if you ever want to get back in to the property market...

 

[BayView]

I find it interesting that those who consider themselves to be optimists, are the same people who advocate holding property during a flat market just to avoid transaction costs.

Is it just me, or is that a negative mindset?

Someone mentioned earlier that there could be a cost of around 20% in order to sell non-performing property.

Now perhaps I am being a little optimistic here, but surely 20% is a small target in terms of future returns in a better property, or even another asset class... no?

I don't think it's negative James.

I look at the costs associated with the sale and the cap gains taxes, then sitting on the sidelines until such time when the climate looks better to jump back in.

Then, having to spend more money again to re-enter the market later on.

This is assuming that the properties are going to underperform in the meantime. They may actually still go ok.

Then, you have the unknown of whether the other investment vehicle you choose to put the realised funds into will perform well.

If you have a portfolio which is neutrally geared or pos cashflowed, there is no financial stress to hold the properties through this period, so this is another reason not to have to sell.

If you add all these factors together, it seems to me that it's probably not worth the effort for maybe a better return elsewhere, which at the end of the day might only be slightly better than not doing anything at all with the current portfolio. There are too many "what-if's" attached to the exercise for me to contemplate doing a sell-off.

I know that the shares option could be more luctrative of you went in that direction after a property sell-off, but what if the investor doesn't have any shares knowledge, or there is a "dead-cat bounce" again? This is definitely the situation for me; it is far more risky for me to sell my properties in the hope of some better gains in the share market because of my lack of shares knowledge.

 

[Aaron Sice]

give it up, y'all.

seriously. there's always a reason NOT to buy a house.

so they can rent.

and fund our investments.

no one has a crystal ball. all we can do is extrapolate data and invest accordingly.

someone (or some hedge fund) is holding the big black pen that tells you what your assets are worth so fawgedabowdit - just do what you gotta do.

some whinge because they missed the boat. some say they invested here and there to save face but didn't have the guts and are kicking themselves silently. others wantto avoid investing. others want to give it a go. some want to quit their jobs and do it FT.

end of the day, you can only answer to yourself.

 

[Shadow]

Exactly why the real D&G is annoying with serial re-posting of their thesis based on Demographia, Prof Keen and assumptions of inevitability of following the circumstances of UK, US, Japan, etc into widespread decline of RE prices by up to 40% and of retracing historic price/income ratio of about 3. These postings pop up under suspicious circumstances of collaboration, where one user would retire and another new poster would confidently take up the 'crusade' but with similar rant. The gloom case has been pushed radically and often with arrogant certainty by the D&G crowd, such as 40% price decline and high unemployment and consequently, high price decline.

I think the gloomers have all scurried back into their caves until the next cycle. I suppose it's hard for them to stick to their mantra when median house prices are rising, auction clearance rates are back at boom levels, housing finance commitments are up strongly, interest rates remain at historic lows, investors are coming back, population growth has increased to a record 1.9% per annum, and Australia is sailing through the GFC (relatively) unscathed with no technical recession so far.

The funny thing is, most people on SS told the gloomers that this is what would happen, but the gloomers covered their eyes and ears and screamed that interest rates would hit double digits and stay there, and that house price would fall by 40% as the over-leveraged specufestors were forced to panic sell and flood the market with all their 'empty houses'. Because you see we're just like the USA. And the UK. Oh, and Japan too. What happens there must happen here.

So once again the gloomers sat on their hands and did nothing (apart from trying to scare people), and once again they missed out on some excellent buying opportunities. What's the bet they will all return during the next cycle whinging about still having to rent, revealing that there are millions of empty houses hidden away somewhere, and claiming that we were 'lucky' to buy at this time, but that the big 40% crash is definitely coming up within two years and we're all doomed. For real this time. Edward Karan II said so. And of course we will deserve what we get for our immoral participation in the worlds greatest Ponzi scheme. It is only fair that the gloomers should get their hands on our houses for a 40% discount. After all, life has been so unfair to them, and we're just a bunch of greedy slumlord specufestors who contribute nothing to society. We should really try to be more like them... give something back to society by stocking up on gold and burying it in the back garden!

 

[chilliaa]

its worse than that Shadow,
the gullable, after listening to the D&G'ers delayed their purchases when they actually could have picked up some potentially juicy property deals at the hight of the GFC.

Now they realise they are gullable and determined not to listen to the D&G'ers again, so instead they are now getting ready to buy, just waiting for a bit of a correction, the problem is it isnt comming, the window of opportunity has passed, so they are waiting...waiting.... waiting...
and as property prices continue to go up in the near term, the pressure will build, until suddenly they say stuff it, im in, im sick of everyone else making top returns, buy at any cost.....

and then there will be a timeframe, when the D&G'ers are right, they will jump up and down and say told you so, i was off with my timing, but i told you so...

and the gullible will say i should have listened but by then the banks will be in possession of their properties.

 

[GreatPig]

at the hight of the GFC

So you're certain that hill has been crested already?

I know the blinkered will just knock this as more D&G ramblings, but the latest Mauldin newsletter might be of interest. Shadow should love it at least, since it's full of graphs.

GP

 

[Shadow]

I know the blinkered will just knock this as more D&G ramblings, but the latest Mauldin newsletter might be of interest. Shadow should love it at least, since it's full of graphs.

Thanks. Actually I'm already a subscriber to Mauldin's newsletters.

He included an interesting comment in his article on Friday...

http://www.investorsinsight.com/blo...chive/2009/06/19/this-time-its-different.aspx

...this is a global problem and primarily one in the "developed" world. I think we will find that much of Europe will be in a worse state of affairs than the US. If there are bright spots in the developed world, I tend to think they will be Canada and Australia/New Zealand. The opportunities are more likely to be in emerging markets, after they adjust to the new normal...

 

[chilliaa]

So you're certain that hill has been crested already?

I know the blinkered will just knock this as more D&G ramblings, but the latest Mauldin newsletter might be of interest. Shadow should love it at least, since it's full of graphs.

GP

GFC is over, of that im nearly certain (but hey im only a retail investor at the end of the day).
Companies are recapitalising their balance sheets, banks raising equity. There will always be scaring mongering out there, but i think the worst has passed in regards to this.

However we still have the global recession to deal with, and i still think we are in for a long period of suboptimal global growth, no medium term strong 'V' type recovery.

 

[GreatPig]

If there are bright spots in the developed world, I tend to think they will be Canada and Australia/New Zealand

Damn... now everyone's going to want to come here.

(yes, yes, I know... good for property prices)

GP

 

[Sunfish]

Damn... now everyone's going to want to come here.

The Yanks won't. They can't bring their guns.

 

[GreatPig]

Why would they need to? They could just do what everyone else here does and steal some from the police or army.

GP