Ol' timers words of wisdom

Okay ol' (SS) timers :eek: now's your time to shine!!! ;) :D

In a heated property market (particular for Melbournians) what advice can you offer to the newbies who may be feeling that their ship has sailed, and the chances for buying into the market is now nothing more than a distant memory???

From me, I can only think of three words.....

SAVE, SAVE, SAVE!!!!

Probably more now than you ever have; I mean REALLY pull the reigns in on that unnecessary spending; cut out the iced frappe, latte or hot chocolate with your daily egg-bacon muffin, go out to dinner one night a week less and shop at Target/KMart/BigW once in a while!!

What's the point I hear you ask??? You probably won't be able to buy in this market!! So??? Maybe not, but things will settle down again, and just think about how much you can have stashed away if you really get hooked on habit of saving....heck by the time the property bubble has burst you might actually be able to put your hand up at an auction to bid rather than to scratch your head in amazement!! :D
 
You'd be stupid to buy in this market. Buy when others are selling and sell when others are buying. The smart investors got in > 12 months ago. :D
 
Don't buy in Melbourne. There are other cities.

Yep - or if you do, buy somewhere outside the inner ring - Many suburbs in the west are still affordable as are outer east.

Failing that consider units, flats, or town houses in more desirable areas that are less expensive than houses.

Co-owning property with relatives, friends etc could be another option.


Regards Jason.
 
You'd be stupid to buy in this market. Buy when others are selling and sell when others are buying. The smart investors got in > 12 months ago. :D
Fundamentally that makes $$$ sense, however if you're looking to buy and sell in the same market it doesn't matter when and/or what other people are doing, that is...."what you loose on the swing, you gain on the round-about".
 
Fundamentally that makes $$$ sense, however if you're looking to buy and sell in the same market it doesn't matter when and/or what other people are doing, that is...."what you loose on the swing, you gain on the round-about".

Unless you buy for investment like we do. In which case, you don't buy and sell in the same market. You can refinance property in hot markets and use the money to buy in cooler markets.

Melbourne may have more boom left, who knows. But I would say the more cautious move would be to avoid buying in the hottest markets. When markets move into the sort of short-term 'get in before it's too late' mentality, the risk increases, a la Sydney circa 2003.
 
Do you suggest people save because you believe prices are going to come down in Melbourne?
Although I believe prices will drop back a little as part of a "correction" as happens in any cycle, the fundamental values of saving can never be underestimated, and should be a part of everyone's long term investment strategy, especially the young/those starting out. :)
 
Unless you buy for investment like we do. In which case, you don't buy and sell in the same market. You can refinance property in hot markets and use the money to buy in cooler markets.

Melbourne may have more boom left, who knows. But I would say the more cautious move would be to avoid buying in the hottest markets. When markets move into the sort of short-term 'get in before it's too late' mentality, the risk increases, a la Sydney circa 2003.
Agreed, buying and selling in the same market should be predominantly for PPORs however it can be done with investment properties, ie. sell one large for two smaller ones. Like most investors who have witnessed the boom-bust patterns of property cycles, I'd probably "cash out" when things are still hot and go bargain shopping once the dust has settled. ;)
 
Like most investors who have witnessed the boom-bust patterns of property cycles, I'd probably "cash out" when things are still hot and go bargain shopping once the dust has settled. ;)

I haven't felt confident enough to cash out, partly because of the CG and costs of buying and selling. I refinanced and let money sit in offsets when I thought the market was too hot.
 
Fundamentally that makes $$$ sense, however if you're looking to buy and sell in the same market it doesn't matter when and/or what other people are doing, that is...."what you loose on the swing, you gain on the round-about".

Averaging results in less than average returns. Buy low, sell high. We made an error in buying during a boom and renovating just in time for the bust, should have taken the first offer but were used to the higher prices. :(

Agreed, buying and selling in the same market should be predominantly for PPORs however it can be done with investment properties, ie. sell one large for two smaller ones. Like most investors who have witnessed the boom-bust patterns of property cycles, I'd probably "cash out" when things are still hot and go bargain shopping once the dust has settled. ;)

Generally we buy and hold with the view to cash out in order to retire. We have sold properties due to bad tenants, lack of quality REA in an area, or poorly chosen location not generally to get CG's. Rather than cash out short term we would get a new valuation and draw down equity.

Regards

Andrew
 
For a newbie buying their first home I'm not so sure the same rules apply to those investing. No one can predict the future for certain so I'd be inclined to just deal with it and buy if it's a PPOR.

The market was hot when I bought my new PPOR in late 2007 and all through 2008 we were thinking 'our home is probably worth less now than when we bought it but we don't really care because we're happy in our new home and want to be here a long time' Come 2010 and it's hotter again and worth loads more.

Would I buy an IP in Melb right now? No
Would I buy a PPOR if required in Melb right now? Yes - because I want to live in my own home and emotions ARE a part of that. It's not just about $$ when it's your own piece of paradise.
 
For a newbie buying their first home I'm not so sure the same rules apply to those investing. No one can predict the future for certain so I'd be inclined to just deal with it and buy if it's a PPOR.

The market was hot when I bought my new PPOR in late 2007 and all through 2008 we were thinking 'our home is probably worth less now than when we bought it but we don't really care because we're happy in our new home and want to be here a long time' Come 2010 and it's hotter again and worth loads more.

Would I buy an IP in Melb right now? No
Would I buy a PPOR if required in Melb right now? Yes - because I want to live in my own home and emotions ARE a part of that. It's not just about $$ when it's your own piece of paradise.

Investing and PPOR are two seperate beast. Would we have bought our current PPOR as an investment... no way. Would I buy now if I had to move to Melbourne to live? Probably not. I would be more likely to rent until the market cooled.

Paradise can be hell when the market is too hot, and the interest rate hounds are about to be released.
 
Averaging results in less than average returns. Buy low, sell high. We made an error in buying during a boom and renovating just in time for the bust, should have taken the first offer but were used to the higher prices. :(
Although I can't stress the importance of timing enough, I also think that you need to be realistic; inflated expectations can hurt almost as much (if not more than) inflated prices. If you couldn't get the price you wanted (which unfortunately as we all know, happens) you may have been better off to wait. I not only bought in THIS inflated market, but got a real bargain. For the last 12 months I had been looking in an area where the average house price was between 500-600K and by sheer accident I stumbled across a property that was being offloaded in the low-mid 400's, so needless to say I didn't hesitate!! If I subscribed to the "don't buy in a heated market" philosophy, it would have been snapped up (by someone else)!! As it turned out, I paid 445K (Feb) and the house next door (same house and land dimensions, similar layout) sold within 2 days of being listed for $525, and others in surrounding streets even higher!!!
Generally we buy and hold with the view to cash out in order to retire. We have sold properties due to bad tenants, lack of quality REA in an area, or poorly chosen location not generally to get CG's. Rather than cash out short term we would get a new valuation and draw down equity.
I deal in "cash" a fair bit, maybe it's because I'm retired or maybe because it works best for me. For the most part, I don't like to sell (it's a four letter word in my books) but if I see opportunity to do better with my snoozing $$$ then I will cash in my chips and go shopping. So far, I have hit the nail on the head EVERY time; call it skill or luck (don't really care which) it's made me a very happy little vegemite!! :D
 
Well, I'm not an ol'timer somersofter but I'm ol'time. ...I agree with the emphasis on saving. However, most kids don't understand the power of compounding and don't see past their piggy banks to the big picture. It's just the nature of most young people.

I once did an exercise with a bunch of unruly teenage boys. We took the price of a cup of coffee 5 days a week, added it up, added compound interest and looked at the result for a theoretical 20 years later.

The boys weren't unruly any more - they were gobsmacked and started to see a tiny bit past their ipods into the future.
 
Do you suggest people save because you believe prices are going to come down in Melbourne?

And this is the salient point.

Are people making the same point on BHP shares which are selling on a dividend yield on 2.2% & RIO at 0.7%.

I am far from suggesting purchasing property in any location without careful due diligence and without some careful reference to what is happening in the broader market, but to simply take the line that the entire Melbourne property market is white hot, is gullible.

Anyway, some thoughts, not in any order
* don't purchase in your preferred location - look at 2-3 train station stops (if relevant) from your location or even intra or interstate (although that is easier said than done)
* change the property type you are looking at purchasing
* Sell a property. If you think its a ridiculous time to buy, why would you not sell? Revaluing unless you have a substantial income or significant equity tocontinue purchasing eventually becomes problematic.
* Pause. Don't buy & live life
* Ignore eveything I said because would you really take advice from a space ranger who travels the galaxy on the property market

As an aside, but it seems we are totally absorbed to a point of total imbalance on all matters property. Incresing mortgage payments are now considered "mortgage stress", increasing house prices are now "bubbles". RBA is now seemingly expand its charter to control property prices, with undoubted collateral damage of impeding business growth through higher interest rates. Unaffordability is the new black and the cliche of 00's & 10's :( Ahhhh, rant over.....
 
The market still has a lot of room to move simply because there're many people out there holding off and crying 'bubble' 'bubble' because:

a) they hope it falls so they can pick something up; and
b) they missed out on the first leg of growth so are particularly biased

The media is also very good at publicising the 'bubble'. This holds people back and actually helps keep the growth in check.

When the last of the investors start thinking, "hmmm maybe it's not a bubble after all... perhaps it's time I went in too" and the media starts talking less of a "bubble" but some "stronger for longer" bull market, that's when there's a real bubble. For now, still safe to buy (provided you don't get sucked into going too high, which is easy in this market).

Just my opinion.
 
I'm also in the "caution" mode - I'd say to newbies it's fine to go and buy an IP or 2 (or more) as long as you can comfortably service the loan (i.e. use the first knock back from the bank for a bog standard vanilla loan as your stop indicator). This should give you exposure into the market without extreme risk.

Cheers,

The Y-man
 
Fined the twist.

Buy a property with two incomes ( granny flat & house ).

Buy a property that can be subdivided ( sell the backyard ).

Buy a property with a long settlement ( pick up capital gains before settlement )

You get the picture? use your imagination.

Gerd
 
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