I am too. Keep thinking I'm missing something.
You're really not. I guess it's just very hard for most people to think laterally or differently. And I can understand why, to be fair.
After 20 years of people seeing a negative gearing/cap growth strategy make them or other generations wealthy through property, and after 20 years of peoples attitude to taking on more and more debt to make money getting looser and looser, its proving very difficult for those people to accept that such a successful strategy wont keep producing the same results in a post GFC world. For mine, I believe that's simply because they never consider the role that the explosion in credit growth played in facilitating the capital growth outcome.
Unfortunately property investors have for the most been convinced that undersupply and location are the biggest drivers of growth, but they have forgotten that without lending being available, none of that matters.
With the era of rapid credit growth being over - by that I mean LVR's cant go higher, lending policies wont get looser, banks funding costs will remain under stress, and availability of money will remain tighter - the era of rapid capital growth is most likely also over.
If equity from growth has slowed and is to remain slow, the only other way to create equity is by accelerated repayment of debt, and that means accepting that cash flow is now king. Some investors realise it and understand that NRAS represents the mother of all cash cows. Others unfortunately continue to not understand it because they dont understand the role finance plays in facilitating growth, so they believe that growth is almost an entitlement and property cant ever lose. So no matter what you say to them , they will always believe that the only way to invest in property is to pursue loss making investments in the hope of achieving a big pot of gold down the road.
As Ive said previously. It was a phenomenal success for a generation of investors who were fortunate enough to ride the wave from 1987-2002. Unbelievable wealth was created as investors, encouraged by the re-introduction of neg gearing and the halving of CGT, were able to get almost any amount of money they wanted from eager banks, who offered more and more products and expanded LVR's from 80 to 85, then 90, then 95, then 97 then 100%LVR, and introduced lo doc and no doc and neg gearing calculators and non gen savings and so on and so forth.
The result was tens of thousands of new buyers and investors and speculators coming into property over that decade and a half, loaded up with ever cheaper, ever easier money but competing for the basically the same amount of stock, because local and state governments demonstrated absolute incompetence in releasing land and developing 20 and 30 year plans and getting anywhere near keeping up with the need for new stock...
Easy money. cheaper money. Lower deposits required. Tax laws that encouraged speculation. ( neg gearing and CGT discounts) Pathetic state and local Govts. Is it any wonder prices surged???
But that's over now. It has run its cycle. It's over. There are no miracle ideas of new loan solutions or magical credit policies to save the day and help the banks fond innovative new ways to allow you to borrow more and more money. There are also fundamental mathematical limits bwyond which things just arent sustainable. And the GFC has found them and put an end to the false economy that had grown out of control. At the very least, the GFC means Australian banks will not be able to pursue any fancy product innovation and LVR's just arent going to get higher any time soon. No doc is dead and will basically remain so, and lo doc is now a much more regulated product. The free ride is over.
So for me, that all points to the need to de-leverage to create equity. And as Ive said, NRAS is the mother of de-leveraging tools.