Good point about Perth Redwing.
It's true that there is probably always a booming market somewhere if you look hard enough
And if you can't find a booming one you can always short a loser.
Property is a Poor Investment?
- Thread starter WASP
- Start date
And if you can't find a booming one you can always short a loser.
Hi Sue,
The development your getting into sounds very interesting. Could you tell us some more?
A more specific question, when you say ROI of 7%+ is that on the money you put in, or on the banks money? I would have thought 9% should be easily attainable without development, once you factor in rental yield?
The development your getting into sounds very interesting. Could you tell us some more?
A more specific question, when you say ROI of 7%+ is that on the money you put in, or on the banks money? I would have thought 9% should be easily attainable without development, once you factor in rental yield?
Sunfish, the thing that gets me about shorting, is that you never quite know when the crash is actually going to occur. You know it's coming, but how soon?
The problem (in my mind) is that markets can be pretty irrational, so your speculating on when (if ever) the market will regain it's sanity.
Some people might say the same about shares, but I'd argue that you're buying into companies you believe in. You might care about the stock price when you buy in, but from that point on it's the companies performance that is the most important.
That said I have had some fun tracking HSBC over the last day or so, but only as a form of free gambling
The problem (in my mind) is that markets can be pretty irrational, so your speculating on when (if ever) the market will regain it's sanity.
Some people might say the same about shares, but I'd argue that you're buying into companies you believe in. You might care about the stock price when you buy in, but from that point on it's the companies performance that is the most important.
That said I have had some fun tracking HSBC over the last day or so, but only as a form of free gambling
Here's a question for all of you. Clear a big selling point of property investing is the high gearing you can achieve.
That said you need to keep drawing down equity to keep the LVR high, or else you lose your leverage. Some people suggest drawing down equity to purchase other properties, however this only shifts the problem (this will cause the LVR of the other properties to drop).
If you use equity to only pay the deposit on other IPs, then at some point you'll have so much equity growth that you just can't sink it into enough IPs. Put another way, it wont be your ability to pay the deposit that is the limiting factor, but rather your ability to service the loan (in reality, not in the eyes of the bank).
The idea of drawing down equity to service other property loans is interesting. I think this is even better than the property / stock combo (which in turn I think is better than shares). Up until recently I've thought this was a bit risky, but my views are starting to change.
If your holding costs are low (say $100 per week for a 200k property) then 3 years of holding costs would only come to 15k. 10 years is only 50k. So you could always leave a large margin such that, even if the capital growth on your existing properties flattens out, you have several years to adjust your portfolio to bring your holding costs back into line.
Does anyone have experience with this? What are your views?
Thanks.
That said you need to keep drawing down equity to keep the LVR high, or else you lose your leverage. Some people suggest drawing down equity to purchase other properties, however this only shifts the problem (this will cause the LVR of the other properties to drop).
If you use equity to only pay the deposit on other IPs, then at some point you'll have so much equity growth that you just can't sink it into enough IPs. Put another way, it wont be your ability to pay the deposit that is the limiting factor, but rather your ability to service the loan (in reality, not in the eyes of the bank).
The idea of drawing down equity to service other property loans is interesting. I think this is even better than the property / stock combo (which in turn I think is better than shares). Up until recently I've thought this was a bit risky, but my views are starting to change.
If your holding costs are low (say $100 per week for a 200k property) then 3 years of holding costs would only come to 15k. 10 years is only 50k. So you could always leave a large margin such that, even if the capital growth on your existing properties flattens out, you have several years to adjust your portfolio to bring your holding costs back into line.
Does anyone have experience with this? What are your views?
Thanks.
You're right of course. I have yet to foresee a "correct" time to short stocks in general nor any stock in particular. (but there may be a "9/11, the sequel") I raised the option merely to counter the argument that on any day there is a good RE deal, but not neccessarily a good share deal. This is counter-intuitive.
Yep, I agree. If you look at HSBC stock on the week of Sept. 11, 2001 it was a bargain.
Similarly HK property was a bargain during the SARS outbreak.
Whilst many people thought 9/11, SARS, H5N1, killer bees, Y2K, etc. will be the end of the world, in my experience the world tends to just pick up the pieces and roll on.
In fact, during times of great fear the media actually help you in driving shares down to bargain prices
Similarly HK property was a bargain during the SARS outbreak.
Whilst many people thought 9/11, SARS, H5N1, killer bees, Y2K, etc. will be the end of the world, in my experience the world tends to just pick up the pieces and roll on.
In fact, during times of great fear the media actually help you in driving shares down to bargain prices
Actually, if you use existing equity to buy so that you are essentially financing 105% LVR (5% costs) every time, your LVR really does go up. Besides, as your total asset base goes up, you don't need as much leverage: 7% on a big enough asset base throws off enough appreciation. I mean, say you start with $200k property, 90% LVR so your equity is $20k. You build up to the point where you have $2m in equity and $1m in loans (50% LVR). Is this a problem? Not really. Your cashflow is positive, and you get $140k per year appreciation compound upwards.
Now THAT would be a problem I'd like to have. Too much equity? There are any number of things I can do. Deposit bonds (run a search). Use equity to invest in things that yield more than the mortgage rate (some shares when you include franking credits, corporate bonds, LPTs). Or use it for commercial property, where the loans are more evaluated based on the property's income and not yours. With 'too much equity' it's likely the portfolio will be throwing off a lot of cash anyway (rents increase). My first property now yields 9% on the purchase price, while my mortgage (if I hadn't refinaned) would still be the same. So my property now supports a higher loan than it used to. Serviceability also increases over time.
Say you invest in shares. Would you really worry if you had too much net assets?
Alex
Yep, I agree. If you look at HSBC stock on the week of Sept. 11, 2001 it was a bargain.
Similarly HK property was a bargain during the SARS outbreak.
Whilst many people thought 9/11, SARS, H5N1, killer bees, Y2K, etc. will be the end of the world, in my experience the world tends to just pick up the pieces and roll on.
In fact, during times of great fear the media actually help you in driving shares down to bargain prices
So now that shares are at a high and people believe that underperformers will just be acquired by private equity or supported by superfund flows, and no one expects shares to fall, while most of the news about property is negative..... what would you infer from that?
Alex
With any investment I want the returns to stay high, otherwise I'd be better off shifting the cash elsewhere. In shares if I was gearing at say 50%, then as capital growth occurs I'd purchase more shares (on margin) to re-establish a LVR of 50%.
Similarly with property, I'd like to keep the LVR at 95%. At 60% LVR the gearing benefit of property starts to fade (you're only investing $1.5 of bank money for every $1 of your own). At that point the low return of property will really start to show as you no longer have the leverage to boost it up.
Similarly with property, I'd like to keep the LVR at 95%. At 60% LVR the gearing benefit of property starts to fade (you're only investing $1.5 of bank money for every $1 of your own). At that point the low return of property will really start to show as you no longer have the leverage to boost it up.
I think we both agree that property will pick up eventually, I think we disagree on the time frame.
Alot of sellers are still holding out hoping that they can get the prices on offer in 2003 (or even worse, they've extrapolated the growth from 2000-2003 to the current date and are expecting to get double their property value in 2003). I'm not talking about Perth here, but rather the Gold Coast.
Until the market comes down and holding costs drop relative to rent, property will stay unattractive, and the next 'boom' wont occur IMHO.
Alot of sellers are still holding out hoping that they can get the prices on offer in 2003 (or even worse, they've extrapolated the growth from 2000-2003 to the current date and are expecting to get double their property value in 2003). I'm not talking about Perth here, but rather the Gold Coast.
Until the market comes down and holding costs drop relative to rent, property will stay unattractive, and the next 'boom' wont occur IMHO.
It's late at night and I'm not sure I'm addressing your Q, but:
Nearly ten years ago I bought a vacant block with visions of building on it. It was too big, too good for an IP but I tired of paying rates on it so built an IP on it for cash flow and tax deductability. Naturally I'm sitting on a nice cap gain BUT that gain is no more than the vacant land would have achieved. So, was the opportunity cost foregone (is that a double negative?) of the 200k cost of building more than the holding costs you mention?
Probably so.
But we do what seems appropriate at the time and the land showed no useful gain in the first few years, in fact I failed to get a serious offer when I tested the market.
Life's too short for "couldas".
Thanks for sharing Sunfish.
I wouldn't worry too much about past 'mistakes'. There'll always be ups and downs, as long as you play your hand well how it turns out doesn't matter.
On that note, I have a couple of friends who support themselves by playing poker online and they're unconcerned with whether each hand wins or loses. As long as they follow their overall strategy, they know they'll win more than they lose, and they've been supporting themselves for a year now through poker (and travelling the world at the same time).
I wouldn't worry too much about past 'mistakes'. There'll always be ups and downs, as long as you play your hand well how it turns out doesn't matter.
On that note, I have a couple of friends who support themselves by playing poker online and they're unconcerned with whether each hand wins or loses. As long as they follow their overall strategy, they know they'll win more than they lose, and they've been supporting themselves for a year now through poker (and travelling the world at the same time).
BTW Alex,
If you can find a property on the Gold Coast that will neutrally gear (or come close) I'd be happy to pay you a finder's fee
If you can find a property on the Gold Coast that will neutrally gear (or come close) I'd be happy to pay you a finder's fee
Sorry, I was talking about the rental return. How much you borrowed and how much rent you receive. The calculations do not take into account negative gearing, rates, management fees, maintenane etc
For this project, the ROI is fairly low at just 6% but the CG is good so we will most likely sell this one.
BTW Alex,
If you can find a property on the Gold Coast that will neutrally gear (or come close) I'd be happy to pay you a finder's fee
I've seen houses in the Gold Coast and Brisbane corridor that rent for 6+%. Try suburbs like Brown Plains, etc. But to be honest, if I found a good deal on the Gold Coast I'd buy it myself. You couldn't pay me a big enough finders fee to give up a good deal.
Alex
Is that because good deals are few and far between?
Yes. Though personally, with my finances I can only afford a few deals a year. When I find one, and I can afford to do it, I'll do it. I'm just a novice investor. I don't have a surplus of deals.
Alex
Yes, I also feel that in the current market good deals are rare. Not to say things wont get better though, but it might take a few years.
Dude, a bit uncalled for methinks! You take things too seriously.
Cheers,
The Y-man
