Michael Yardney's says don't buy in the western suburbs

[Bill.L]

Hi all,

MY,

The suburbs we have been recommending in Sydney and Melbourne for the last 18 months have averaged over 15% growth per anum - many 20%.

I always get annoyed at these type of statistics. What exactly has grown at 15-20% per annum. Is it the type of property you mentioned here...

I would rather own a 1 bedroom apartment in a high growth area

....that has performed at these wonderful rates?? There are quite a few examples on this forum where people have bought 1 bedroom apartment inner ring properties, owned them over periods of booming prices, and then sold with out those spectacular growth rates. Y-Man comes to mind as one such investor.

bye

 

[.toe]

And thanks for the courtesy of the polite nature of your reply - it's OK for us to disagree.

Absolutely, and thank you in return.

Don't get me wrong here though Michael, I'm not saying that Capital Gains are not important. Clearly the right balance is required. To err too far toward one at the expense of the other is to risk stalling.

However when so many first time investors are buying up in the inner suburbs, decreasing the available cashflow and commiting their working lives to paying the loss on their balance sheet, I don't see how that benefits peoples lifestyle. For a real benefit, free up some time by creating great deals, then use that free time to create even better deals.

The 'Merryl Lynch Capgemini Wealth Report' uses criteria which is designed to get them business by emphasising a certain aspect of wealth, capital. But what I see is that the even more wealthy seem to use their capital to buy income.

I realise that you help people to buy superior capital gains, but surely the benefit of your business to you is that it creates income.

 

[doozer]

My original post was never designed to open up a can of worms but merely to debate the merits of Yardney's opinion on the western suburbs so hopefully we can stick to that.

I find it difficult to comprehend that Metropole and its Director don't have vested interests just because they have no properties to sell. The fact is the company's unique selling proposition is 'properties with a twist'. Of course property in new estates will not fit that bill so it's difficult to fly their flag. And here we have the vested interest to spruik inner ring properties. Furthermore this is the same company and Director who said 2 years ago? that Australia will experience a once in a lifetime property boom and everyone should get on board before it's too late. Please.

Now I agree that capital growth will usually be better in these inner ring spots however this does not automatically mean the outer ring areas are poor areas to invest. Yardney is right capital growth is what makes you wealthy but cash flow is what keeps you sane and funds the building of a property portfolio if you're not on a million dollar wage. Capital growth is but one element of investment, an important one but just one. Yield and tax benefits are others, they too are important. The fact is most people can't afford to buy in the inner ring but they may very well be able to afford the outer ring.

If investors get the location right, the property right (newer property which is very rare in the inner ring) and the timing right then good times are to be had for the investor regardless where they invest-outer or inner ring. It's a very narrow and inaccurate argument to say buying in the western suburbs is a bad investment decision.


I would prefer some honesty from commentators who have vested interests to just admit they are promoting types of properties that their company deals in but that decisions are based on research. I don't mind this, it's honest and upfront. I admit that I sometimes don't agree with Bernard Salt's analysis but I know that he doesn't sell properties for a living so I take comfort that his opinion is objective. And in this case I totally agree with him, some of the western suburbs of some of our capital cities offer good investment opportunities at the moment. I'm treading my own path.

 

[pickle pickle]

Doozer,

You won. The post has been reopened.

 

[DavidHooper]

This issue was well discussed here (see especially spiderman's excellent post):

http://www.somersoft.com/forums/showthread.php?t=54291

 

[pickle pickle]

This issue was well discussed here (see especially spiderman's excellent post):

http://www.somersoft.com/forums/showthread.php?t=54291

My understanding of this post (without all the juicy posts) was whether Melton area is a good investment. The link that you provide is a debtate about inner vs outer suburbs (which nearly all outer suburbs threads tend to get to be a debate about inner vs. outer).

As I have said before, I'm not a fan of the Melton area (though I'm not an inner city bull either). Maybe in 50 years it will have better capital growth than most of Melbourne, but for the short to medium term from an investment prospective, there are much better areas to invest than Melton. But I think it's good that they are finally building up the west. There's so much land sort of close to the city that can be built up there.

 

[DavidHooper]

My understanding of this post (without all the juicy posts) was whether Melton area is a good investment. The link that you provide is a debtate about inner vs outer suburbs (which nearly all outer suburbs threads tend to get to be a debate about inner vs. outer).

That's one way of looking at it.

I looked at it in a wider manner rather than one about Melton. I saw it as a revisiting of the old inner v outer debate. Nothing wrong with that, it is an important issue that needs to be debated.

 

[BV]

I found a great article that explains the capital growth vs cash flow argument. You can read it here.

You haven't exactly found it.
Its from your website...

 

[pickle pickle]

You haven't exactly found it.
Its from your website...

Investing just for capital growth and not caring about rental returns seems like a prymid scheme to me.

Many inner city properties have around 3% rental return. Surely for the inner city properties to have great capital growth, rental return will need to grow just as fast (inner city properties will return less than 1% rental return). There is a ceiling as to rental growth (laws about excessive rental increases for one).

I would love to get my hands on an inner city property. However I don't buy the argument that inner city properties will always have better capital growth than all other properties. Further the vast majority of people can't afford to invest in good inner city properties (houses).

 

[Piston Broke]

Investing just for capital growth and not caring about rental returns seems like a prymid scheme to me.

I never said "not caring about rentals returns", sometimes you get both.
But I did say that buy-hold-pray is for those who have a high enough income that allows them to keep buying, whilst paying to own.
The former requires tedious work, which most ill never do, or consider it to be buying a residex report and/or reading APY/YPI.

 

[pickle pickle]

I never said don't look at future capital growth. Capital growth is important. However I believe rental returns is also important in working out future capital growth. I'm not saying a property that returns 20% will neccesarily have capital growth, however not looking at rental returns and just relying on capital growth is in my opinion dangerous.

 

[Michael Yardney]

My original post was never designed to open up a can of worms but merely to debate the merits of Yardney's opinion on the western suburbs so hopefully we can stick to that.

...........

I would prefer some honesty from commentators who have vested interests to just admit they are promoting types of properties that their company deals in but that decisions are based on research. I don't mind this, it's honest and upfront. I admit that I sometimes don't agree with Bernard Salt's analysis but I know that he doesn't sell properties for a living so I take comfort that his opinion is objective. And in this case I totally agree with him, some of the western suburbs of some of our capital cities offer good investment opportunities at the moment. I'm treading my own path.

Like you I highly respect Bernard Salt as a demographer. I read as much of his material as I can.

But it comes back to the question of "who do you listen to for investment advice?"

I would suggest you listen to someone who has achieved the results you want to achieve.

It may surprise you that many of the heads of research at the large property research companies own NO investment properties and by his own admission in an article published a while ago Bernard Salt doesn't own an investment property. (this may have changed over the last year or 2)

I agree with him that there is huge population growth in Melton - it's the fastest growing region in Australia - population wise. But I still wouldn't invest there.

But let's look at the track record of Salt's past recommendations:
1. Gold Coast - previously fastest growing region for years - most investors there have seen huge drops in value
2. Mandurah WA - huge oversupply - many investors lost out badly.
3. Hervey Bay - lovely place to holiday - not to invest
4. Sunshine Coast - same as above.

You may call me biased - and maybe I am - but it is not based on what I sell - as I don't sell anything other than services - it's based on 37 years of property investment experience. Lot's of early failures and much success over the last 20 years.

 

[doozer]

Michael, no doubt and no question you have been enormously successful in your property investment but so too have others who have invested in outer areas of capital cities. Also too investors who have timed their run and researched quality properties on the Gold Coast, Sunshine Coast and Hervey Bay (to a lesser extent). No doubt inner ring areas perform well but there is value to be had for the investor who is not on a massive wage to invest in more affordable areas. For many people inner ring areas are simply out of reach to purchase. It doesn't matter how good your millionaire mindset is or how much positive thinking you do, if you can't or don't have the funds then forget it. The outer ring areas offer value for money for those who can afford to buy there as long as research is done on the property, the area and the timing is right.

 

[topcropper]

deleated by topcropper.

 

[Michael Yardney]

Michael, no doubt and no question you have been enormously successful in your property investment but so too have others who have invested in outer areas of capital cities. Also too investors who have timed their run and researched quality properties on the Gold Coast, Sunshine Coast and Hervey Bay (to a lesser extent). No doubt inner ring areas perform well but there is value to be had for the investor who is not on a massive wage to invest in more affordable areas. For many people inner ring areas are simply out of reach to purchase. It doesn't matter how good your millionaire mindset is or how much positive thinking you do, if you can't or don't have the funds then forget it. The outer ring areas offer value for money for those who can afford to buy there as long as research is done on the property, the area and the timing is right.

Doozer you are correct - I don't disagree.

If you can't afford the more expensive inner suburbs, its better to buy the right property elsewhere than not to be in the game at all

 

[our obsession]

What does past performance tell us, what does history and data tell us?

Over time, past performances of growth, over 'long term', well researched, well bought regional, outer suburban, inner suburban property averages out to much of a muchness with growth per annum.

There are within that some higher growth figures, some lower, but the bulk, is much the same, the key, the great thing about investing in property as a tool to build an asset base is that anyone can do it.

Just Do It.

And some reiteration...It is a fallacy that with regional investing there is no solid growth on your properties, researched, bought well, The Deal. It all counts.

Pick a place, research, network, do your due diligence, buy well, get the Deal, the one that best returns to you for your circumstances. Exhale and repeat.

It's fun.

If a latte, lefty, socialist, dogooder, dreamer, clueless on figures and calculations, investing, markets, can figure this out well enough to build assets quicker than she can pick up horse manure...ANYONE can get a handle on this Game!

 

[our obsession]

...and a great start for novices, for people unsure and bedazzled maybe of 'where to start' is get your happy minds on Jan Somers books, especially:

Building Wealth Story By Story

Some of the best information you can get about property investment comes word of mouth from other property investors. This book contains 101 of their stories and provides a great opportunity for investors to learn from others' experiences. Story by story, you will learn the secrets of their successes and the reasons behind their failures, helping you to avoid any pitfalls and stay on the path to financial independence.

http://www.somersoft.com.au/books.htm

The concept of learning that anyone can have a crack at this game, build wealth and leave a burning trail of I did it My Way.

There is no Secret Inner Ring of an Investing Club.

It's all just there, waiting for you to take the first step on educating yourself, learning, doing your due diligence-but mostly having a go. Deciding you will have a Go.

 

[Perp]

where I remain skeptical is that this division exists. Definitely, over time a higher priced property will have gained more in $ terms over a 20 year period, but will it have gained as much more in % terms as the example seeks to show?

If this were true then the division between inner suburbs and outer suburbs in melbourne will be extreme in 20 years time, and must also therefore have been a lot closer in years past, and I'm not talking in $ terms, in % terms. Ratio.

I'm with you, Blitzkrieg. It seems to me that the premium attached to having an inner suburbs property is already built into the price; inner suburbs can only achieve consistently higher capital growth than outer suburbs if the inner suburbs become even more relatively desirable than they are currently, and it's hard to see why this would be the case.

To continue the Melbourne theme, the median price in Collingwood is $705K, and in Melton $240K. At the moment, the market considers that a home in Collingwood is worth almost three times a home in Melton.

If Collingwood were to achieve a higher capital growth % in any year than Melton, this ratio increases. So in order for Collingwood to achieve higher capital growth than Melton over the long term, the market has to determine that a house in Collingwood is worth four or five times a home in Melton, which seems unlikely (IMHO). If the ratio increased to four and the prices were $500K and $2M, it seems likely that the market would decide "hmmm, Collingwood isn't FOUR times better than Melton", and that more people would choose to buy in Melton, pushing up prices in Melton and reducing the ratio again to what the market agrees is the ratio of relative desirability.

Over time, as cities expand, people's ideas of "inner" and "outer" changes - in particular, the concept of "inner" expands, and areas which were fringe become middle or inner. So whilst Collingwood will probably always be preferable to Melton, demographics would suggest that the premium attached to living in Collingwood would decrease over time, as Melton becomes less "outer". This suggests that capital growth of Melton should equal or exceed Collingwood over the medium-long term.

 

[evand]

The inetersting thing here is that residential property investing is the only investment asset class that sacrifices cashflow on the alter of capital growth (i'm in a melodramatic mood this morning).

And that's only because of the many govt/ATO subsidies to do with resi property investing.

Its a skewed investment class that doesn't march to the drum of the pure market but has artificially created returns.

So what, we mights ay. I dont care as long as i benefit. Very true. I agree.

I'm a cashflow man, in all investment, not just resi property. I will not buy on the crap yields available these days.

But that's just me.

As far as the inner suburb/blue chip vs. outer suburb debate. If they have the same cap growth, (as a very loose example) then why is Mt Druiit median price abt. $350k and Vaucluse abt. $1 million dollars?


Whats doing there? Its obvious the inner suburbs have much higher median prices than the outer suburbs. So on a long term basis they much have much higher cap. growth. No question.

I'm ignoring percentages over the last 10 years, which don't tell us much.

They both started from very much the same base



You can make a huge amount of money investing in blue chip suburbs (if you can borrow the funds and handle the crap yields) and do just ok in the outer suburbs. As you're starting from a much lower price.

 

[Perp]

I agree that cash flow management is critical, but to say capital gains is a bonus is, in my opinion, the wrong way around.

Cash flow will never make you rich or wealthy. A substantial asset base will.

The inetersting thing here is that residential property investing is the only investment asset class that sacrifices cashflow on the alter of capital growth (i'm in a melodramatic mood this morning).

Yes, I'm seeing why Michael doesn't like the idea of investing in US property, where the market is much closer to a "real" market, ie a property's value is derived from its ability to earn an income, rather than from the perception that its value will continue to exponentially increase indefinitely.