Landlords shouldn't bet house on capital gains

[Bill.L]

Hi all,

LB, points 1-3 I agree, then you go off the rails a little,

"4. As a result of 1-3, demand will drop while supply
continues on because the cost of building new
house is still comparable to buying a "secondhand"
house. Builders need to keep building to feed their
families."

This is not accurate. We had a couple of threads looking at new vs old a couple of months back and the price of the new houses, on smaller blocks of land, in new developments, in established suburbs, was MUCH higher than the established houses. Some up to double the price.

Secondly, history shows us that when there is a downturn in property sales(and price rises), there follows a reduction in home approvals.

If you have a growing population, and a reduction in home approvals, you end up with a growing demand for existing accomodation. Rents begin to rise, followed later by house price rises, then greater development of new housing. That is the cycle of things here.

But you think "this time will be different"!


Kristine,
I noticed a similar thing when I visited my brother in Sydney about 9 years ago. The quality of gardens was appalling compared to the ones in Melbourne.

At the time I wondered if the influence of poker machines in the clubs was causing the difference. Then I wondered if it was just the amount of money spent on the mortgage meant not enough for the garden.

Maybe Melbourne is just following Sydneys lead?

bye

 

[abcdiamond]

The gardens in my area seem pretty good still.

I wonder how long the follow on effect will take to reach Brisbane from Sydney/Melbourne ?

Kristine, your post made some very good comments. Food for thought.

 

[Aceyducey]

We had a party yesterday for the kids as a housewarming.

Of the fifteen sets of parents attending (from neigbouring suburbs) , 9 were looking at, starting or had recently begun renovating their houses.

All of them had chosen to do this as they felt this was better value than buying a new house.

There are currently two houses undergoing renovations within 100m of our house that we are aware of, and at least another five houses under work in the street I normally use to get to the nearest highway (ie: within 1.5km).

Not many shabby yards though

So that's the trend I am seeing down here in the ACT, and that friends of mine in the hardware industry in Canberra, regional NSW & Sydney are reporting.

Oh, and having recently moved down here from Sydney, I was seeing the same thing around our local area (Strathfield-Bankstown) and have been for a few months.

I'm not going to bother cross-posting this to the thread where people were telling me I was blowing hot air about a renovations craze - they can come read this thread

Cheers,

Aceyducey

EDIT: And I guess the HIA agree, they've reported that renovations are expected to continue to grow at 5% in the ACT for the rest of this financial year.

 

[L Bernham]

It could be like Kristine said that some of the x% just cant afford to keep up the pace. I have a friend who was convinced by a mortgage broker to buy an IP showing her how easy it was.
She recently lost her job and her husband is working long and hard trying to pay off two mortgages. They were trying to find a tenant but couldnt afford to pay for a $90 ad in the paper to find one.
I was discussing her finances with her but stopped trying to help when I realised how negative their equity was and wondered how on earth they could get out of it (my only advice would have been bankruptcy). I referred her to a trustworthy friend who knows a lot more about it than me who can hopefully get this family out ok.

This kind of thing happens at all times in the property cycle so it doesnt just apply now but it gets me wondering how many other overexposed people due to mortgage brokers pushing for business.
LB

 

[Mikhaila]

Gardens look good and improving in my area of Melbourne (12-13km East of CBD). There is a garden supply shop near by and they have very distinct small-medium size delivery vehicles. These little trucks are busy as bees during Saturdays. Three houses out of five on our court recently (less than a month) have done some serious garden maintenance. We done medium job to the garden about 5-6 months ago.

LB, I am not sure if mortgage brokers can be blamed when somebody overexposed. If these people tend to overexpose it is going to happen one way or another – margin loan (blame financial adviser), fancy four-wheel drive (blame car salesman), expensive OS holiday (blame travel agent) etc etc. Another point - when one looses a job it is usually a drama in any case with or without IP, but people usually tend to find another job. It can be a short/medium period of financial turbulence, but wise people (again with or without IPs) tend to be prepared for something like that. It was plenty sad about how much one needs to set a side on this forum. I don’t know all the details of the case you mentioned, but getting a job sounds easier and much better choice than bankruptcy.

M.

 

[Aceyducey]

I agree with Mikhaila here.

I don't believe mortgage brokers contribute to people over-extending themselves to any significant degree. Nor do real estate agents. Both these groups do not have the leverage to make the over-extension deals happen.

More common culprits are financial advisors who focus on sub-optimal investments which funnel money into their own pockets and property marketers using illicit and pressure tactics to sell property to naive investors (note this doesn't necessarily include all property marketers).

And regardless of who is blamed, at the end of the day people are responsible for their own actions and should take responsibility for them. You can lead a horse to water, but the horse has to choose to drink (choosing sometimes to ignore the poisoned corpses of other horses scattered up and down the stream bed).

Cheers,

Aceyducey

 

[L Bernham]

I know what you're saying Mikhaila but this particular case was probably heading for bankruptcy regardless.
Also in this case, I can say with 99.9% certainty that it was the mortgage brokers pushiness that made them make a bad decision.
She was never interested in owning an IP and definitely couldnt afford it. She didnt buy well either having spent a fair bit on unexpected repairs already.
I think people should go to brokers to get a loan when they know what they want - not brokers come to them suggest they buy an IP telling them they only need to hold it for 6-12 months and can sell it again for an easy profit as what happened in this case.
Unfortunately she (and her hubbie) is the sort of person who trust what they are told by someone seemingly in the know.
There are people like that. Should they learn the hard way and be forever getting ripped off or should there be some protection for this sort of thing.
Getting a new job isnt as easy as it sounds in Qld. Unemployment rate seems to be low but I keep hearing complaints that "the jobs just arent there"

LB

 

[jahn]

Kristine
Lots of good stuff in your post.
Re the garden scene. The area I live, still has plenty of properties with pride in the garden/yard appearance showing. But, it does seem to me to be less of it than in previous times. (says he who for the first time is living between 2 rental properties on either side, with both tennants completely unaware of the description or whereabouts of a thing that cuts grass, or a rake.)

My opinion is that as times change, more and more people are looking at gardening/maintaining their yard, as too time consuming, and not aware at all of any rewards/satisfaction, from their labour/inpt.
Sure, there are considerations like drought, water costs, etc. etc. but the typical garden for many first timers, years ago, were referred to as granny gardens, because you got cuttings, etc from either granny, or friends and neighbors, and had a 'mixed' style of growth. However, if you were keen enough, it 'showed' in the end results. "Lovely" = satisfaction and increased value.

I must admit, that right now, the gardens seem to contribute less to the real value of the property in many cases, due to the developer type purchaser, who is intent on either 'knock it all down and build bigger", or bulldoze it and start with a clean slate.
One more thing before I go. The amount of properties that have been renovated in some of the suburbs in my area, is amazing. No best garden awards, but neat, well presented.
jahn

 

[Jakk]

Originally posted by L Bernham
…………
Property is currently one of the most riskiest investments around. (ie high levered, very illiquid, high transaction costs, risk of no income, high ongoing expenses, undiversifiable (unless you have $millions), historically overpriced etc).

LB

Originally posted by L Bernham


I have said now many times - not all properties are overpriced. The average property is. This means that in a bust,many more properties will lose value than gain value and as such it could be better to steer clear esp if you are in it for easy riches.

LB

Originally posted by L Bernham


This is how it will happen in my opinion.
5. While this "flatness" is going on, investors are reviewing their positions and making their exit (smartest ones first)
6. MArginally more sellers than there are buyers mean even more deflated prices
7. Deflated prices means more sellers keen to get as returns are now well in the red and hearing negative media reports of "unfortuante people ripped off by greedy RE agents etc" doesnt help.
8. More sellers as banks foreclose and forced sales push prices lower and lower.
9. Very small number of new investors as general population now considers property to be a "dud" investment as nearly everyone knows of someone who had to sell or is sitting on big capital loss.
10. prices fall so rental returns 8-10% (or more) but investors nowview this as fair compensation for risks involved (as most places always have)

cheers
LB

Originally posted by L Bernham

When the hype disappears there will actually be less new investors (demand) as well as more sellers (supply) creating a double whammy of forces affecting prices.

LB

Originally posted by L Bernham

I was discussing her finances with her but stopped trying to help when I realised how negative their equity was and wondered how on earth they could get out of it (my only advice would have been bankruptcy.
LB

Originally posted by L Bernham

Getting a new job isnt as easy as it sounds in Qld. Unemployment rate seems to be low but I keep hearing complaints that "the jobs just arent there"

LB

Mr. Bernham,

Can I ask if you have any GOOD NEWS?

regards

 

[suggo]

Does she really want a Job?

I can get her a job!!! I'm serious!!

Or is she picky about what she does?

There are jobs everywhere, it's just people don't want to do them!

 

[willair]

LB,
If the past has taught anyone in property investing anything, is that every cause brings its effect, every action has a consequence
but bankruptcy must be last on the list ..the only person to blame is yourself ,if you dont do your homework in the first place and go in blind and fail.
good luck
willair..

 

[Aceyducey]

Nothing wrong with going bankrupt ,so long as it teaches you not to make the same mistakes again!!!!!

The worst thing that can happen is dying, everything else you can recover from (even losing your mind).

And if you hold the right belief system, dying ain't so bad anyway

Cheers,

Aceyducey

 

[MarkB]

Dying can be quite a good financial option for some people.

Look at Elvis!

His estate earns $US 40 m a year.

There can be no more passive income than that which you earn from "the other side".

http://www.forbes.com/2003/10/23/cx_ld_deadcelebtear.html

Plus.... he's saving money on Cheeseburgers!

MB

 

[L Bernham]

Plenty of good news JAkk
It just depends on which side of the fence you're sitting.

bankruptcies create work for lawyers, insolvency practitioners, thugs and baseball bat manufacturers.

Overpriced and oversupply of properties means renters get cheap rent.
A few guys I know are very happy about this. 5 of them have moved into a "mansion" that they were able to get for peanuts.

I myself live in a place that I could never justify buying but have no problems renting.

Remember, for every buyer there is a seller, so when prices fall it means there are a lot who sold at the peak.

Cheers
LB

 

[jahn]

Hi all

Just a thought starter for the quote;

"Remember, for every buyer there is a seller, so when prices fall it means there are a lot who sold at the peak. "
What if the sellers at the peak, bought at the previous trough ?
And what if they bought at the previous mid point. ?
They made a profit.
And what if they didn't sell either time, and still own it.

I have another thought (they are rare). Since LB started the threads on "sell before the bust" or you'll go under, type discussions, how many people on this forum have bought property, and how has it gone for you.
E.G. Since then, we have bought 1 small investment house, reno'd it, and about to finish it, with a gain in equity of between 40 to 50k. Not big developers, but small steps are fine by me.

jahn

 

[L Bernham]

As someone posted previously
In the last few years you could have thrown a dart at a map blindfolded to find a place to buy and made a profit .

 

[Mondie]

Originally posted by jahn
I have another thought (they are rare). Since LB started the threads on "sell before the bust" or you'll go under, type discussions, how many people on this forum have bought property, and how has it gone for you.
E.G. Since then, we have bought 1 small investment house, reno'd it, and about to finish it, with a gain in equity of between 40 to 50k. Not big developers, but small steps are fine by me.

jahn

Jahn,

We purcahsed an apartment in Merimbula OTP 8 weeks ago for $355k, the identical apartment beside ours just sold for $410k!! Places like Merimbula are growing very nicely because of the seachange/BB thing and will continue to for some time IMO.

 

[Bill.L]

Hi all,

Jahn, your very astute.

Since LB started with all the gloom and doom a few of months ago, we have purchased a run down Cal/bungalow in Geelong, spent $25k renovating, and added about $100k in value.

Meanwhile other IPs continue to grow(especially Brissy).

If we had gone "Oh my god " when we first heard his prognosis, and sold other IPs, and not bought the Geelong place, nett worth would be a couple of hundred $K WORSE OFF.

I'm sure he may EVENTUALLY be right, but prices would have to double again before he is. Far more likely a slowdown of price rises.

bye

 

[abcdiamond]

Hi Bill

Not sure about LB's all doom and gloom

I already 'rent' property that I own via a Trust structure

LB

He does seem to own property, (via his trust), and it looks like its in Brisbane, our favourite growth area.

 

[Aceyducey]

ABCD,

That actually isn't correct - LB rents,I raised the point about renting a Trust owned property =LB just wanted it added to his poll

We've made in excess of $100K since LB began posting SELL NOW doom & gloom....hmmm, I hope he sticks around

Cheers,

Aceyducey