Low yield / growth for a long while

[recruit2]

So here's how I currently see the property market and I don't see it changing for a long time.

- Everything is fully pumped and unrealistically unaffordable compared to 10 years ago relative to incomes.
- Nothing is going to automatically double any more (apart from lucky/rare mining towns).
- Yields are crap (apart from lucky/rare mining towns).
- If you already have equity, maybe its a good time to upgrade to a more premium property which you could buy at a discount at the moment.

Ok so why actively invest in property?

The only money from here on is in actual adding value. I.e. gutting a dump and reviving it, adding granny flats or manufacturing yield etc.

You might as well call that "work" because you'll have to work hard to do it.

Much easier for me to make money far easier from my well paid job and forget all the blood, sweat, tears associated with the property market these days.

Similarly, I see the share market as pumped and you'd have to be very careful with that too.

So if one has some cash flow coming through, where to invest it in a long term low yield/growth economy?

I can't seem to think of a better plan than:

"work hard and put the money in the bank"

 

[vaughan]

- Everything is fully pumped and unrealistically unaffordable compared to 10 years ago relative to incomes.
...
- If you already have equity, maybe its a good time to upgrade to a more premium property which you could buy at a discount at the moment.

I don't understand... first you say that property prices are fully pumped, then you say they are at discount rates at the moment. Both cannot be right.

 

[Aaron_C]

I don't understand... first you say that property prices are fully pumped, then you say they are at discount rates at the moment. Both cannot be right.

The top end of the market isn't so hot right now...hence the 'discount'.

 

[DaveM]

Buy well, do small improvements which add value, positive gear. There are plenty of good opportunities out there if you can be bothered to spend the time searching.

I have just bought a villa for $185k which, after a quick paint and installing builtins will rent for $300pw and will revalue at $210k like others in the complex. It will be positively geared.

 

[recruit2]

Buy well, do small improvements which add value, positive gear. There are plenty of good opportunities out there if you can be bothered to spend the time searching.

I have just bought a villa for $185k which, after a quick paint and installing builtins will rent for $300pw and will revalue at $210k like others in the complex. It will be positively geared.

Well Done Dave. But ok, you made $25k on paper which will be halved by capital gains if/when you sell it and that's only if you achieved the full sale price. Also if you borrowed the entire $185k-$190k, it wouldn't be positively geared, only would be because you already had other cash/equity lying around for the deposit. And its still probably positively geared by like $20 per week or something.

Is it really going to set you up for life? You'll need like 30 properties like that just to add up to anything substantial to actually change your lifestyle.

I don't see the big "wow property is such a good investment" any more...

 

[HiEquity]

So here's how I currently see the property market and I don't see it changing for a long time.

- Everything is fully pumped and unrealistically unaffordable compared to 10 years ago relative to incomes.
- Nothing is going to automatically double any more (apart from lucky/rare mining towns).
- Yields are crap (apart from lucky/rare mining towns).
- If you already have equity, maybe its a good time to upgrade to a more premium property which you could buy at a discount at the moment.

Ok so why actively invest in property?
....

I can't seem to think of a better plan than:

"work hard and put the money in the bank"

Well Done Dave. But ok, you made $25k on paper which will be halved by capital gains if/when you sell it and that's only if you achieved the full sale price. Also if you borrowed the entire $185k-$190k, it wouldn't be positively geared, only would be because you already had other cash/equity lying around for the deposit. And its still probably positively geared by like $20 per week or something.

Is it really going to set you up for life? You'll need like 30 properties like that just to add up to anything substantial to actually change your lifestyle.

I don't see the big "wow property is such a good investment" any more...

What kind of talk is this on a property investing forum? Every property is a dog - really?

There isn't one property in the whole country that might provide good cash flow and good growth? Are you sure you're looking in the right places? There are properties being exchanged at double digit net yields and yet you say this?

I think you need to cast your net a bit wider and I don't mean just mining towns...

 

[Aaron_C]

Are you sure you're looking in the right places? There are properties being exchanged at double digit net yields and yet you say this?

I think you need to cast your net a bit wider and I don't mean just mining towns...

recruit2 has a point, I must say. A property that yields you a return of 11% is really only 4% nett. That's all well and good - BUT the % is based on a small number ($200,000), which is just $8,000.

While you have to start somewhere you can see the limitations of this strategy because at the end of the day, you are limited by your own time. Managing 30+ properties to get a decent number is just too much work for what you get out of it.

 

[HiEquity]

recruit2 has a point, I must say. A property that yields you a return of 11% is really only 4% nett. That's all well and good - BUT the % is based on a small number ($200,000), which is just $8,000.

While you have to start somewhere you can see the limitations of this strategy because at the end of the day, you are limited by your own time. Managing 30+ properties to get a decent number is just too much work for what you get out of it.

Where did I say anything about buying $200k properties? Or managing 30 properties? You can get 11% net on $20m or $2m properties as well and probably well below that if you're really looking.

BTW earning a 4% margin on larges sums of OPM sounds pretty good for me. Far better than what you can get from small amounts of cash in the bank. Unless you have a better idea for passive investing?

 

[Aaron_C]

Where did I say anything about buying $200k properties? Or managing 30 properties? You can get 11% net on $20m or $2m properties as well and probably well below that if you're really looking.

BTW earning a 4% margin on larges sums of OPM sounds pretty good for me. Far better than what you can get from small amounts of cash in the bank. Unless you have a better idea for passive investing?

recruit2 was referring to the $200,000 property, so that is what I am referring to as well. No need to get upset.

I don't think there's any such things as true 'passive' investing - finding the deal in the first place and maintaining it (even if you employ someone else) is still very much 'active'.

You can probably find properties yielding 10% but as you say, they usually occur at the bigger end of town because there is less competition and it is more difficult to get finance. Those are worthwhile of course - but most of the people on this forum can only dream of buying such properties. I hope that within 10 years that can be within my own reach - but we shall see.

 

[DaveM]

Well Done Dave. But ok, you made $25k on paper which will be halved by capital gains if/when you sell it and that's only if you achieved the full sale price. Also if you borrowed the entire $185k-$190k, it wouldn't be positively geared, only would be because you already had other cash/equity lying around for the deposit. And its still probably positively geared by like $20 per week or something.

Is it really going to set you up for life? You'll need like 30 properties like that just to add up to anything substantial to actually change your lifestyle.

I don't see the big "wow property is such a good investment" any more...

I buy and hold. CGT means nothing since its a long term retirement strategy so in 30 years time I have X properties that are either cash flow or saleable to convert to cash. I earn quite enough from my job to not have to rely on property cashflow to supplement it.

Conversely I dont really want to pay money each week to hold. Lower end properties are easy to be cashflow neutal or slightly positive, which suits my strategy.

The $25k on paper converts to a split to buy something else. I buy with 20% deposit, price down/up over time dont bother me.

Of course if you are looking to speculate and get hundreds of thousands a year in CG, its a different strategy. As is the buy, reno, sell strategy. As is the line of equity strategy.

Pick one (or none) that works for you. But theres no point coming here bemoaning woe is you and the property market is dead.

 

[MIW]

So here's how I currently see the property market and I don't see it changing for a long time.

No body knows that.....

- Everything is fully pumped and unrealistically unaffordable compared to 10 years ago relative to incomes.
- Nothing is going to automatically double any more (apart from lucky/rare mining towns).
- Yields are crap (apart from lucky/rare mining towns).
- If you already have equity, maybe its a good time to upgrade to a more premium property which you could buy at a discount at the moment.

Premium property suffer more in tought times more affordable suffers less....
Property is not a quick get rich scheme....

Ok so why actively invest in property?
The only money from here on is in actual adding value. I.e. gutting a dump and reviving it, adding granny flats or manufacturing yield etc.
You might as well call that "work" because you'll have to work hard to do it.

All investments are work without knowledege people often make mistakes...

Much easier for me to make money far easier from my well paid job and forget all the blood, sweat, tears associated with the property market these days.

I would disagree, income is subject to tax, currency devaluation (inflation). At least with property you may hedge agaist that.....

Similarly, I see the share market as pumped and you'd have to be very careful with that too.
So if one has some cash flow coming through, where to invest it in a long term low yield/growth economy?
I can't seem to think of a better plan than:
"work hard and put the money in the bank"

Well with all QE and fractional reserve banking I hope you buying power will not be affected too much.
I tend to view things differently, if the startegy was to acquire when possible, why not buy against the herd mentality, when there are more opportunities at present.
It all comes back to your investment plan.....

 

[morg]

It's always a tough call on where to park your hard earned cash, but a bank deposit? Really?

Earning, say 6%. Lose a 1/3 rd on tax. Watch inflation erode the rest of it.

 

[recruit2]

Where did I say anything about buying $200k properties? Or managing 30 properties? You can get 11% net on $20m or $2m properties as well and probably well below that if you're really looking.

Sure, but that isn't really a leg up for the average punter is it...

If you've already become wealthy from previous property booms when everything automatically doubled then sure you might be able to leverage up and buy a $2m property, but most people couldn't even go close, so no 11% returns...

 

[HiEquity]

Sure, but that isn't really a leg up for the average punter is it...

If you've already become wealthy from previous property booms when everything automatically doubled then sure you might be able to leverage up and buy a $2m property, but most people couldn't even go close, so no 11% returns...

Really? Are you sure about that?

Still sure?

 

[recruit2]

No body knows that.....
Property is not a quick get rich scheme....

Oh, it used to be! That's how all the people in API magazine amassed their fortunes back in 2001 without having any amazing strategies.

If I get one single promotion in my job, my income can jump $20,000 - $30,000 per annum. And I'll still be doing the same 8 hour days.

 

[recruit2]

"Jace and Tracey Smith, both work in mining and bought their first 3 bedroom house in 1999 from Jace's mining salary and it doubled in 2001 when they bought two more for $100,000 each. After that they suddenly had $9,999,999,999 in equity where they then went on to purchase 10 more properties. Jace now looks after the kids at home living off rent and says "Anyone can achieve their dreams, it wasn't easy but we did it, yeah our strategy was "buy properties and they just quadruple, it was really smart"". etc etc etc.

That's the typical stories from 10 years ago and like I said, I was part of that boom too so I know how easy it was.

Those days are over!!!

You actually have to be smart now and "produce" something to make money. I.e. add value, work hard, subdivide, or whatever... Or buy 100 properties that each generate you $20 per week cash flow positive and hope it adds up to something meanwhile you live in administrative hell (easier to get a high paying job).

Property is now the over-saturated "receptionist's investment" that every receptionist (and her "hubby") all want to be a part of. You have every sucker scouring the internet doing the same analysis, looking for something with a yield and looking for bargains. Everyone has access to the same information and that's another reason now why its continually pumped. 10 years ago, without the internet and everyone asleep it was a completely different environment.

 

[mrmonopoly]

Sorry recruit2 but your assumptions are again a little naive. Sure the days of easy credit and the boom(s) that came with it might be behind us, but I can assure you there are many many people making lots of money out of property still.

Like every good business it is those who evolve with the times and adapt strategies quickest who succeed. From your prior thread contributions and the fact that you are on a property forum suggests you must be interested in property as an asset class to some extent? If so, I'd recommend you do some searches around concepts such as 'the time value of money', 'leverage' and 'compound growth' both of initial capital and rent return.

You will very quickly see how even the rent alone can be affected, as whilst an initial investment may only be positively geared by $20 per week, over time that rent will grow and grow where as the initial mortgage will be eroded away by inflation. Run some hypothetical scenarios even with conservative growth forecasts and see where you end up.

 

[Oscar]

more than one way to skin a cat

I haven't bought any Australian property since 2007. I concentrated on making big bucks from the JOB for the last 5 years. I'm now cashed up and broadening my horizons by looking for global opportunities. I've started buying a string of properties in the US. In the process of closing on #1 and will probably go to about 3. great yields and I believe even greater potential for capital gain. Also currently looking at unit blocks in Dublin city center. I'm looking at purchasing a block of 5 apartments for around 300-350K euros, with return of 42K in rent role. Again, great yield, but even better when the capital starts to grow again. The beauty here is I can finance them with 25% deposit, unlike the US properties that are purchased in hard cash. I am after 2 of these dublin babies. That should see me happy for a while.

Never give up, there's always an opportunity (or two) somewhere.

 

[BayView]

I have just bought a villa for $185k which, after a quick paint and installing builtins will rent for $300pw and will revalue at $210k like others in the complex. It will be positively geared.

Couple of questions on this one:

What is it renting for before the proposed reno?

Are there other renoed units in the complex renting for $300p/w?

Is it in similar condition to the ones valued at $210k? If not (if it's worse), then surely it's only worth $185k anyway?

 

[vaughan]

Strata fees: don't forget the strata fees. These usually kill returns and "gross yield" values never take them into account.