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

[sash]

Michael,

Yes, the posts can be emotive as you are on a property forum....and your commentary on the Outer Sububrbs may be on the nose like CBA's recent announcement on interest rates.

Anyway, I digress...having properties in the double digits and having invested for 10 years...my comments are:

1. Having said that I'm sure the regular members here know that 90% of all investors never get past their 2nd investment property and recent research from Michael Matusik shows that 25% of investors sell their property within 1 year and 50% sell within 5 years.

Yes...being a property investment forum....there are people who own over 40 properties on this site. Would be interesting to do a poll of how the high net worth individuals on here made their money...on blue chips or bread and butter property. We know that Jan Somers made it on 3/4 out of ten properties.

2. However I would rather own a 1 bedroom apartment in a high growth area than a house and land package in an outer suburb with poorer growth.

Yes...have a some 1 & 2 bedrooms in high growth areas (Dulwich, Marrickville, Meadowbank) in Sydney believe it or not a property I own in Werribee doubled in 4 years. The one bedder in Dulwich tripled in 11 years. So growth is not dramatically different.

3. Your argument about investment grade property is flawed. Buying a 1 brm in Eastern/South Eastern suburbs of Melbourne will return about 4-4.5% instead of 5-6% on the outer suburbs. The cost will also be about 100K more. If you look at this from a loan serviceability view, you won't be able to buy another better suburbs unit for longer. I think you missed the point about also portfolio holding size

4. You have forgotten that the growth in Melbourne has been driven by Chineses and Indian immigrants and there is evidence alot of them are heading to the Southwest and West. Also affordability will drive prices. Also just because there is land, the developers do not have the resources to develop all of it at once so supply is artifically constrained.

Michael, also it would be incorrect to say that you do not a have a vested interest as it is natural for people to promote their businesses.

As for Bernard Salt....his track record whilst not perfect has been quite good. As always do your due diligence.

Cheers
Sash

It's been so long since I posted here I forgot how emotive topics like this can be.

Let me say I recognize there are many ways to invest and different strategies suit different people - their stage along their investment journey and their cash flow situation.

Having said that I'm sure the regular members here know that 90% of all investors never get past their 2nd investment property and recent research from Michael Matusik shows that 25% of investors sell their property within 1 year and 50% sell within 5 years.

So what I have written about for 10 years now is different from what most others say - and I don't apologize for it. You are welcome to disagree

However I would rather own a 1 bedroom apartment in a high growth area than a house and land package in an outer suburb with poorer growth.

The suburbs we have been recommending in Sydney and Melbourne for the last 18 months have averaged over 15% growth per anum - many 20%. Obviously you can't just buy any property or anywhere.

I only recommend "investment grade" properties.

While Melton may be a great place to bring up your family - to me it's not an investment grade area. The demographics of these suburbs are not what I look for when selecting an area to invest -there is not a wide demographic group of tenants and there is no scarcity of supply - lots of homes all very similar.

Your money will run out before your opportunities will - buy in the best areas you can afford - even if it is only a 1 bedroom apartment

 

[forumite]

Michael,
You have forgotten that the growth in Melbourne has been driven by Chineses and Indian immigrants and there is evidence alot of them are heading to the Southwest and West. Also affordability will drive prices.

Cheers
Sash

Absolutely agree with this.

Cheers
forumite

 

[.toe]

What do I have to do to become very, very wealthy from property investing assuming I'm not already very wealthy? I'm likely to have to buy many properties over time. And I won't be able to negatively gear them all because I'll run into debt servicing problems.

Let's assume I have used up all my spare cashflow from my job already. Here's roughly how I might need to proceed from one purchase to the next (to get these figures I used Jan Somers PIA software and plugged in figures from one of my own properties).

30% deposit should get me a CF+ property at 5% yield at normal market prices. Or

60% deposit is required for a CF+ property at 2.5% yield at normal market prices.

So that if I had just bought a property which was CF+ at 5% yield I would need a capital gain of 30% before I could buy another one like it (not withstanding that the properties are now more expensive). If my property was CF+ at 2.5% yield I would need a capital gain of 60% to buy another one like it.

The images below are from Investsmart website which shows both 36 month returns and yields (though the figures are a little bit old I think), first image is 2.6% ave yield, second is 5.3% yield. Ave cap gains in the first group is 43.9% and in the second group it's 19.6%.

So after three years the low yield properties are 73.1% of their way to the goal of a 60% return, and the high yield properties are 65.3% of their way to their goal of a 30% return. To me the two figures are not that different.

The cost to get into those areas? For low yield the average is $279k vs. $957k. If I start out with access to a million bucks I could buy roughly 4 high yielders or 1 low yielder. Either way, five years later I'd be ready to go again. So what should I do if there's not much difference between the high & low yielders? Why wouldn't I take my time to identify the high yielders with the best potential for capital gains and invest there? That would have to be easier than finding an affluent inner suburb with a yield >5%.

How would Christie Downs SA have been at 47% capital gain in 36mnths and still 5.2% yield? After 36mnths you'd have bought your second round of CF+ properties and half way to your third.

 

[doozer]

http://www.prd.com.au/research/(mwisho45mfdt5j55c0yofn45)/Portals/1/Melton%20PW%20l%20Third%20Qtr%202010.pdf

 

[sash]

The trick is to be only older houses in suburbs like Melton and Werribee.

Want to do the maths on following:

1. Melton South bought 2007 for 155k, currently worth 260k

2. Werribee bought 2006 for 130k, currently worth 260k

3, Hoppers Crossing bought 2006 for 170k, currently worth 300k

If my maths serves me correctly ....65% growth in 36 months for Melton South, 100% for 48 months for Werribee, and 77% growth in 48 months.

Hope this helps...

What do I have to do to become very, very wealthy from property investing assuming I'm not already very wealthy? I'm likely to have to buy many properties over time. And I won't be able to negatively gear them all because I'll run into debt servicing problems.

Let's assume I have used up all my spare cashflow from my job already. Here's roughly how I might need to proceed from one purchase to the next (to get these figures I used Jan Somers PIA software and plugged in figures from one of my own properties).

30% deposit should get me a CF+ property at 5% yield at normal market prices. Or

60% deposit is required for a CF+ property at 2.5% yield at normal market prices.

So that if I had just bought a property which was CF+ at 5% yield I would need a capital gain of 30% before I could buy another one like it (not withstanding that the properties are now more expensive). If my property was CF+ at 2.5% yield I would need a capital gain of 60% to buy another one like it.

The images below are from Investsmart website which shows both 36 month returns and yields (though the figures are a little bit old I think), first image is 2.6% ave yield, second is 5.3% yield. Ave cap gains in the first group is 43.9% and in the second group it's 19.6%.

So after three years the low yield properties are 73.1% of their way to the goal of a 60% return, and the high yield properties are 65.3% of their way to their goal of a 30% return. To me the two figures are not that different.

The cost to get into those areas? For low yield the average is $279k vs. $957k. If I start out with access to a million bucks I could buy roughly 4 high yielders or 1 low yielder. Either way, five years later I'd be ready to go again. So what should I do if there's not much difference between the high & low yielders? Why wouldn't I take my time to identify the high yielders with the best potential for capital gains and invest there? That would have to be easier than finding an affluent inner suburb with a yield >5%.

How would Christie Downs SA have been at 47% capital gain in 36mnths and still 5.2% yield? After 36mnths you'd have bought your second round of CF+ properties and half way to your third.

 

[.toe]

I'm with you 100% Sash, the older houses are going to be closer to services which will be in short supply in fast growing areas, creating lots of competition. And at the yields on those properties you'd be able to turn over each one into a new CF+ property mighty quickly.

 

[willair]

I'm with you 100% Sash, the older houses are going to be closer to services which will be in short supply in fast growing areas, creating lots of competition. And at the yields on those properties you'd be able to turn over each one into a new CF+ property mighty quickly.

I know nothing about the area,some inner flood prone areas in Sth Side Brisbane were like that 12 years ago,but the entry price was less then 100k on large blocks,the same has happened everywhere and 12 years ago no one wanted large blocks..willair..

 

[Aaron Sice]

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

The rich build their assets, while the average Australian builds their cash flow.

but the poor need cash to accumulate assets.....

and if growth is going to be stifled over the coming years surely cashflow is what you need to be exposed to.

balanced portfolios and all that - but everyone has to start somewhere. and the easiest way in is to build more cashflow and then invest in high growth assets.....not that those types of assets are easy to find now. perception is one thing, performance is another.

 

[Player]

Cash is like Oxygen

but the poor need cash to accumulate assets.....

and if growth is going to be stifled over the coming years surely cashflow is what you need to be exposed to..................

Nicely said

Cash (flow) is like oxygen......the body (capital base) doesn't last long without it


Perhaps the only exception is those who have significant net worth and have already set up their offets/LOC's and can suck out equity whilst still flying under the lender's radar.

To set up a LOE strategy now would be challenging in the current fiscal environment. Not saying it's impossible, but I would rather be rent reliant than capital reliant.

Of course the ideal would be to have both options available

 

[Rockstar]

but the poor need cash to accumulate assets.....

and if growth is going to be stifled over the coming years surely cashflow is what you need to be exposed to..................

Nicely said

Cash (flow) is like oxygen......the body (capital base) doesn't last long without it

And where does the mind fit in, oh master?

Wouldn't you say that the poor need more than just cashflow? You know the truth - you are just keeping it to yourself.

 

[sash]

Ditto Player.

You are absolutely correct in saying the capital base does not last long without CF.

I have friends who bought only blue chip property in Melbourne and Sydney. Thye have had pretty good growth CG wise...but they are in precarious positions in terms of CF. They are still funding 2-3 properties at a rate of about $250-300pw after all tax deductions. Should their income stop they are likely to have to tip in $400-$500 per week.

These guys are also funding additional purchases due to their negative CF situation. The banks are now very focused on the net CF position.....and since they typically use rates 1-2% above their std variable....you need a solid CF position to hope of qualifying for a loan once you pass 2-3 properties.

significant[/B] net worth and have already set up their offets/LOC's and can suck out equity whilst still flying under the lender's radar.

To set up a LOE strategy now would be challenging in the current fiscal environment. Not saying it's impossible, but I would rather be rent reliant than capital reliant.

Of course the ideal would be to have both options available

 

[Aaron Sice]

MY - let me set the record straight. I respect everything you do and say and research. I may or may not disagree with your sentiments and these views are expressed as an alternative.

Wealth is great - if someone else perceives your wealth at the same value you are purporting.

over time - specifically the last 50 years - RE has been an amazing wealth vehicle.

now i see values going nowhere for around 5-10 years - do we just sit around and wait for wealth to return?

i'd rather chase the cashflow until i see some positive signs in macro markets before putting my hard-earned down on anything remotely linked with "wealth building".

give me options, CF+, JV's etc to minimise my outgoings and generate equity (again,a percieved value).

sorry, without cashflow your dreams of building wealth are dead. why neg gear yourself (or neutral gear) and wait for growth, when you can go out and get the money that growth would provide, straight away?

you could pay off those investments with the surplus cash and replace an income or two.

isn't that the idea behind investing? passive money creation?

 

[sash]

Hey where is Michael Yardney's responses...surely he would to put his commentary in???

Given this is a property forum....it would be interesting to hear further on your views. After all this how people learn. I would love to see some hard numbers on your blue chip property purchases.

MY - let me set the record straight. I respect everything you do and say and research. I may or may not disagree with your sentiments and these views are expressed as an alternative.

Wealth is great - if someone else perceives your wealth at the same value you are purporting.

over time - specifically the last 50 years - RE has been an amazing wealth vehicle.

now i see values going nowhere for around 5-10 years - do we just sit around and wait for wealth to return?

i'd rather chase the cashflow until i see some positive signs in macro markets before putting my hard-earned down on anything remotely linked with "wealth building".

give me options, CF+, JV's etc to minimise my outgoings and generate equity (again,a percieved value).

sorry, without cashflow your dreams of building wealth are dead. why neg gear yourself (or neutral gear) and wait for growth, when you can go out and get the money that growth would provide, straight away?

you could pay off those investments with the surplus cash and replace an income or two.

isn't that the idea behind investing? passive money creation?

 

[Player]

No secrets

..................................And where does the mind fit in, oh master?

Wouldn't you say that the poor need more than just cashflow? You know the truth - you are just keeping it to yourself.

Greetings Kimosabe

The mind is more of an activity, than a thing IMO.

You are alluding to mind-set, which is much like a book of rules or a blueprint personal and unique to each one of us. Some are geared for success and some for mediocrity.

There are exceptions and some circumstances that may predispose (groups of) people to remain stuck. Then again it can be argued that even under duress, there are choices in reacting or responding. The latter being the more accountable stance. There are always examples of great accomplishments arising out of impoverished backgrounds, atrocities and life experiences forced upon certain individuals

I won't digress the thread too much or we'll open up a can of worms. The poor (and this is relative and open to one's interpretation) and I use that word to continue the theme of your post Rocky, need three things:

Awareness (Knowledge)

Belief (Faith)

Conduct (Action/Discipline)

No great secrets there. Many (not all) who remain stuck do so of their own choosing awaiting the abundance of the universe to fall into their lap whilst they lay supine on the comfy couch.

Not keeping it to myself, as you allude in jest and humour my friend ...........it's out there in the infinite field of possibilities...........out on The Fringe (gee I really liked that show)...............I'd better stop or I'll break into quantum theory

 

[Thesnowyforest]

Yardney is like the aussie version of Robert Kiyosaki. Now dont get me wrong, i originally got alot out of kiysoaki and i've read yardneys first book.

However he's much more in the business of selling information, motivation, and getting bums on seats at seminars.

Much respect to Yardney as i'm sure he's not short of a buck, but everyone has there method, and if it works for you. DO IT.

DO IT being the key words here.
There not much else to it really.

By the way i had an indepth conversion with a Marrickville agent recently. He said buyers agents weren't his 'mates' and that they pay a premium for their clients properties. But then i'm sure all RE agents operate diferently.

 

[.toe]

evand,

BHP is currently on a yield of 2%, so I assume people are only buying it for growth, yet is is marketed by the finance industry as a must have in a portfolio.

I don't think you're original statement really stacks up at all...



bye

The yield on BHP is not the appropriate comparison to yield on resi property. That's because not all of the companies earnings are returned to shareholders via dividend payment, some are reinvested in the company which means the shareholder still owns those earnings.

The approprate comparison would be EPS% which on BHP is about 5.9% at the moment. Better than a renter in South Yarra.

 

[D.T.]

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.

I'm not really familiar with the other 3 towns mentioned, but show me evidence of people losing out badly in Mandurah. It's gone up a lot. Or are you one of those who violates statistics to make them fit your story?

 

[Rockstar]

now i see values going nowhere for around 5-10 years

After which it will boom? Can you read the moment when to get in? Those who are in for the long term will always catch the boom.

sorry, without cashflow your dreams of building wealth are dead. why neg gear yourself (or neutral gear) and wait for growth, when you can go out and get the money that growth would provide, straight away?

Not here to defend MY but there are plenty of folk out there with ample cashflow who need to put it somewhere. I have never heard or read MY say that people should exhaust their cashflow for the sake of punting on a high CG property. There are so many variables that come into play and each individual has to decide how much of their cashflow they want to risk according to their situation.

 

[Rockstar]

Greetings Kimosabe



I won't digress the thread too much or we'll open up a can of worms.

You know I love worms.

Not keeping it to myself, as you allude in jest and humour my friend ...........it's out there in the infinite field of possibilities...........out on The Fringe (gee I really liked that show)...............I'd better stop or I'll break into quantum theory

Always refreshing to hear your thoughts. Will try and keep this stuff in the Investor Psych section where it belongs.

 

[Michael Yardney]

I'm not really familiar with the other 3 towns mentioned, but show me evidence of people losing out badly in Mandurah. It's gone up a lot. Or are you one of those who violates statistics to make them fit your story?

Hi Dave

You're from WA so you would know more about Mandurah than I would.

When I visited it 2 months ago there was a huge oversupply of new apartments and one developer was offering a free BMW if you bought his property.

Plus there was a heap of investors who bought land in the region to "block and build" but can't get their projects off the ground.

Has the market improved recently?