Making money in falling market

If one takes a view that the residential property market will go down in the next 12 months, are there any ways to make money?

In shares for example one can buy a put option, or a put warrant, or sell short.

Say cheese :p ,

Lotana
 
Hi,

I guess one way of thinking, would be that flexible terms may be easier to negotiate.

For example, you may have had you eye on a property that was reasonable value at the peak.

Being good, it may not side down too much, but the vendors may consider that with a dropping market, the precieved value of their property will drop too.

Now, if someone comes along and says, hey I think you're right about the price you want for your place.....but, you know how this market it, finance is getting harder to come by, what way you finance me the deposit, I'll get the rest, you get your price, and I'll be happy with you giving me some time, how's that?

This I think is harder to do in a hotter market.

Michael G
 
Hi Lotana,

Yes you are quite correct:

Property does seem high just at this time. The low rental returns are evidence enough of this.

It might just be the right time to get your bank to recognise the equity in your properties NOW, whilst the sun shines.

Notice too that shares are at their 1987 lows!

What better time to go against the herd and buy some very cheap stocks?

I certainly am.

Regards,

Steve
 
An oldie but a goodie "you make your money when you buy".

If the property market crashes be prepared to buy while all around are selling in a panic.

Bob
 
Hi

A recent report went something like this:

the Stock Marrket indicated that there have been five clear Bear Markets in the stock market over the past 100 years.

Of the five, four have taken up to 12 years to decline to their natural bottom prior to rising again with the exception of the great depression which "crashed " over a period of four years.

In each instance the "drop" was about 60% from the previous peak before a steady rise which followed.

The current bear market drop is almost 50% in Australia (30% on the NY Stock Market) so by the charts has another 10% points to go in Australia before the bottom is reached, further in NY.

If you have some spare cash AND KNOW WHAT YOU ARE DOING, then short trading the stock market may be great value for you. My personal feeling is that the market still has some distance to travel - DOWN, but please do your own due diligence.

As a general rule, Gold moves in the opposite direction to the Stock Market. In other words, gold is a "hedge" against the market.

To a slightly lesser degree, Real Estate works in a similar manner to gold. Recall the last big drop. In the 80's, the stock market was going gang busters, rising at an enormous rate and despite all the warnings, people kept on buying and forcing Market values up. When the "stock market bubble burst" in 1987, people deserted the market into property forcing the value of property up to unrealistic levels. The inevitable had to happen, the market rallied in 89/90 and property collapsed.

So how does it compare to today? The opposite!

Today the stock market is working in reverse. It is steadily dropping and has been so for all this year despite the "money Market" people trying to talk it up. They cry, increase interest rates, stop the FHOG scheme, the property market will burst, anything to get people to BUY into the stock market and not short trade the stock market. So what does it all mean?

To stick my neck out. The world stock markets are all going down. This is partially causing the property market to remain high in places and to increase even further. Sydney is far to high, rental levels are far below the comparable sale price, and Melbourne is not far behind. Brisbane has been flat for several years and is now taking off and according to all the experts will continue to do so for some time, maybe two or three years. That is, Brisbane is the NOW place to be.

So to answer your very good question. My feeling is to be very cautious about investing in SYD or MEL properties until it levels out. There won't be a bubble burst. This is money market and media hype. There will be a plateauing effect, maybe a slight drop but no crash. So not such a strong investment property market. Is my neck out far enough yet?

Do your due diligence, research before you invest and avoid buying those properties inflated to unrealistic levels based solely on the promise of future gain. They will go soft.

My money for the next several years will be in short trading the Sydney Stock Market, trading NOT investing, and investing into the Brisbane property market.

Regards

Ross
 
Thanks for your post Ross It has some sensible advice in it and observations about the markets which I agree with. I did lose some money in the 1987 fall of the share market when a financial advisor said this is where it should be invested in sharemarket funds. But,I lost even more in property trusts! at least the shares bounced back but not the commercial property fund. Today I still prefer property,as you can have fun choosing your own that suits your own investment style. cheers, Maureen
 
I think finding your niche is important.

Wrapping is an example.

There is an interesting ad I saw in Sydney Morning a couple of months ago and I think the idea is interestng so I will share it with you all here, this is how it goes:

COUNTRY HOUSE AND LAND SALE

SUPA-BARGAINS 10% NETT

NEW UNITS EXTRA SPECIAL OFFER
6 x 2 brm $450,000 Let $45,000
5 x 2 brm $375,000 Let $37,000


EXTRA SPECIAL OFFER
5 x houses $280,000 Let $28,000
2 x houses $130,000 Let $13,000

Call xxxx xxxx

I rang up and found out that the guy goes to NSW country towns and buys cheap properties. Then advertise in Sydney's Senior citizen publications for pensioners to rent his properties. The pensioners sign up a 5 years lease and renew it every 5 years for the next 25 years.

And this guy flips/on sell properties to investors.
 
Balancing act

Great article Ross!

An interesting idea is to balance via diversification.

Using Ross' assumptions:

Increasing property value Vs declining share prices,

A draw down against the increased property value is placed piecemeal into a declining equity market. One can NEVER precisely know when any market has peaked or troughed, so one cashes out on the up (NOT sells, rather by way of a draw down) and slowly purchases into the declining market. (After all it is getting cheaper and cheaper - now isn’t this just wonderfully logical?)

The reverse applies when the markets switch. This way you get the best of both worlds!

Aaaah, investing can be so interesting.

Regards,

Steve
 
I sure am happy I decided to hitch a ride on your bandwagon, Steve. My plans for the next ten years have risen exponentially since I did the seminar in April.

Mark
'no hat, some cattle'
 
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