Property - the Game has changed?

[sash]

It has been interesting to see how the spruikers are still saying that some regionals and mining areas are okay.

I have a friend who I am trying to steer away from certain mining towns but the he is insistent that the spruikers are correct. He is convinced that areas like Moranbah and Karratha are still goers. I guess a fool and his money is easily parted..they have to go through school of hard knocks.

The other thing I see is that there are people still putting money in towns like Moree, Gunnedah, Kempsey etc. Whilst these towns have great returns...has anyone thought of how easy it is to exit these towns?

Frankly it astounds me how little due diligence is being done. The game has changed and unless you are buying in a major city or regionals with at least 50,000 people you are NOT making a prudent decision.

The other thing is how some spruikers are inflating their networth. I recent example of a certain person saying that you can buy house Watanobbir for 195k reno for 10k and revlaue at 250k in a housing commission suburbs. Now that is a joke......most of these house are selling for 220-230 with a reno. After adding purchase costs you would be lucky to be up bu 10k! The return is okay about 280-300pw. On top they have paid some of these spruikers 5k in buyers agents fees. How do I know...because I own one there....I bought virtually a new townhouse for 232k in 2011...and have it rented it for 360pw. I know this in a best part but in firesale I could only get 270k for it.

Interesting....to read about all these people buying great deals in YIP or API....but I have good laugh when I find out how is actually making the money...the spruikers or the investor. Why are people so naive???

 

[joeExpat]

Yes, the game has changed.
But just like in Dubai, Ireland, Spain & the US of A, everyone thinks "It can't happen here !"
All these countries had their booms and were on top of the world at one point.

But as the adage goes the time to get out is when the shoeshine boy is offering stock tips.
When people can get loans with ridiculous 5% deposits on 5+ times income multiples interest only loans, and are prepared to accept thousands of dollars of losses a year in anticipation of price increases, it's time to get out.

The time to buy will about 1-2 years after interest rates start to rise, property investment magazines go out of business and traffic on this forum drops 80%.

 

[mattnz]

Interesting....to read about all these people buying great deals in YIP or API....

I have a friend who was in one of the mags for a reno they did. The magazine stated they had made $80k profit in a few weeks. In reality they made $18k. The magazine had conveniently left out stamp duty and sales commissions to the agents. They also had free labour from friends which wasn't taken into account.

 

[redwing]

The game is ever evolving

Watanobbi is a real place

I thought it was a crack at spruikers and fee's etc i.e. 'What a Nobby'

 

[matto_]

Certainly a lot of talk in the mainstream about the Mining Boom finishing. Ore prices on their way down etc.

It has got to have some impact on the Mining towns property prices (particularly if mines are deemed to be not viable).

Being a long term game - if you are prepared to holod for the long term, I assume things will turn back around.

 

[Ricky]

Certainly a lot of talk in the mainstream about the Mining Boom finishing. Ore prices on their way down etc.

It has got to have some impact on the Mining towns property prices (particularly if mines are deemed to be not viable).

Being a long term game - if you are prepared to holod for the long term, I assume things will turn back around.

What would you consider as long term ?

 

[MTR]

Certainly a lot of talk in the mainstream about the Mining Boom finishing. Ore prices on their way down etc.

It has got to have some impact on the Mining towns property prices (particularly if mines are deemed to be not viable).

Being a long term game - if you are prepared to holod for the long term, I assume things will turn back around.

Timing is everything, just shows how critical it is to purchase at the beginning of the cycle especially when you are buying in mining towns, make your money and then run.

MTR

 

[HiEquity]

The game has changed and unless you are buying in a major city or regionals with at least 50,000 people you are NOT making a prudent decision.

sash - I normally don't have a problem with your posts as far as they go but this simply must be one of the most ridiculous statements ever made on this forum by an experienced investor.

The population of Busselton is approximately 15,000. So by your logic, a person buying this, with a 7 year lease to the Commonwealth, is not being prudent, regardless of the price paid?

If so, your definition of prudence is not one I aspire to...

 

[kum yin lau]

Hi HE,
I'd consider the property you linked as high risk. There's 4-5 years left of the present lease & then it is option to renew.

I'd expect Busselton to have a lot of land for building.

What's to stop CES from walking away when the current lease expires?

With a population of 15000, which other corporation will require that much space?

The ongoing rent is 260K p.a. so the asking price would be 3M?

Anyway, the example doesn't fit the normal 3BR resi that's under discussion.

KY

 

[redwing]

sash - I normally don't have a problem with your posts as far as they go but this simply must be one of the most ridiculous statements ever made on this forum by an experienced investor.

The population of Busselton is approximately 15,000. So by your logic, a person buying this, with a 7 year lease to the Commonwealth, is not being prudent, regardless of the price paid?

If so, your definition of prudence is not one I aspire to...

HiEquity

Had to bold the above in relation to prudence, can you clarify it a bit more for me?

 

[HiEquity]

HiEquity

Had to bold the above in relation to prudence, can you clarify it a bit more for me?

sash's statement was not qualified in any way. Every property in a city or regional centre below 50,000 population is a dog by that definition. No matter how cheap you get it for or how long the lease, or who the lessee is.

I guess I rail against two things:

1) The working assumption on this forum that whenever we are discussing property investing we are necessarily talking about residential when a large proportion of us don't think like that at all and see numerous (and far better) opportunities elsewhere. This can be quite frustrating when you hear people complain there aren't any opportunities...
2) Making unqualified blanket statements about entire property markets "about to boom" or being "dogs", when none of us can buy an entire market. What is the point of such a discussion? Sure some people are being ripped off and others are making a motza right now - isn't the point of this forum to help us all be less likely of having the former result and more likely of the latter?

/rant.

 

[Trogdor]

I agree with Sash on the > 50k people thing.

Otherwise its speculation. Sure, if you get in early on a mining town in 2002 - through skill or luck, there is a lot of money to be made. Just like people who bought small cap iron ore producers back then.

But for each winner there have been, and will be, lots of losers in small towns / mining towns.

I hate to think of whats going to happen to those who are buying million+ houses in mining towns when the next recession happens in Australia - and its not if, but when. It could be 1 year, 5 or 15 - if this happens cashflows and capital values will be decimated.

 

[redwing]

sash's statement was not qualified in any way. Every property in a city or regional centre below 50,000 population is a dog by that definition. No matter how cheap you get it for or how long the lease, or who the lessee is.

I guess I rail against two things:

1) The working assumption on this forum that whenever we are discussing property investing we are necessarily talking about residential when a large proportion of us don't think like that at all and see numerous (and far better) opportunities elsewhere. This can be quite frustrating when you hear people complain there aren't any opportunities...
2) Making unqualified blanket statements about entire property markets "about to boom" or being "dogs", when none of us can buy an entire market. What is the point of such a discussion? Sure some people are being ripped off and others are making a motza right now - isn't the point of this forum to help us all be less likely of having the former result and more likely of the latter?

/rant.

Thanks HE

I just checked the current population of the town I was born and raised in (sits at approx 16,500 as at June 2011) I've seen a lot of people do well in the region.

I read Sash's initial post as Caveat emptor

It's been interesting looking at some of the projects still on the books in WA, Iron Ore is not the only game in town

The individual investor should act consistently as an investor and not as a speculator. This means.. that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money's worth for his purchase.

Benjamin Graham -

 

[HiEquity]

Hi redwing

Funny you should mention Graham - I'm just reading "The Intelligent Investor". I guess that's where the bit about price was at the front of my mind. I completely agree there is a right price for everything - regardless of where it is. Just have to find it...

 

[sash]

HiEquity....my post is my personal opinion and observation. Kum Yin Lau has covered it well from a risk perspective. Always go into property with an exit strategy...what happens if it all goes pear shaped?

sash - I normally don't have a problem with your posts as far as they go but this simply must be one of the most ridiculous statements ever made on this forum by an experienced investor.

The population of Busselton is approximately 15,000. So by your logic, a person buying this, with a 7 year lease to the Commonwealth, is not being prudent, regardless of the price paid?

If so, your definition of prudence is not one I aspire to...

Ditto KYL.....

Hi HE,
I'd consider the property you linked as high risk. There's 4-5 years left of the present lease & then it is option to renew.

I'd expect Busselton to have a lot of land for building.

What's to stop CES from walking away when the current lease expires?

With a population of 15000, which other corporation will require that much space?

The ongoing rent is 260K p.a. so the asking price would be 3M?

Anyway, the example doesn't fit the normal 3BR resi that's under discussion.

KY

Good point Trogdor....the fundamentals and exit strategy is VERY important!

Well the people who bought in Karatha and Moranbah late in the boom are about to find put. Rents are dropping as well as prices. The question is whether these people thought about an exit strategy or have the Cash/CF to hold.

I agree with Sash on the > 50k people thing.

Otherwise its speculation. Sure, if you get in early on a mining town in 2002 - through skill or luck, there is a lot of money to be made. Just like people who bought small cap iron ore producers back then.

But for each winner there have been, and will be, lots of losers in small towns / mining towns.

I hate to think of whats going to happen to those who are buying million+ houses in mining towns when the next recession happens in Australia - and its not if, but when. It could be 1 year, 5 or 15 - if this happens cashflows and capital values will be decimated.

Spot in Redwing.....the next boom areas are Agriculture and LNG. The LNG demand is not only from Japan (they have learnt the lessons fron nuclear) but also Korea, China, and to some degree also India. I think people will start to gradually move away from Coal soon. Also...areas like Port Hedland will remain stable or better as they service a large foot print in NW WA.

Thanks HE

I just checked the current population of the town I was born and raised in (sits at approx 16,500 as at June 2011) I've seen a lot of people do well in the region.

I read Sash's initial post as Caveat emptor

It's been interesting looking at some of the projects still on the books in WA, Iron Ore is not the only game in town

 

[HiEquity]

I seriously can't believe anyone is defending that statement but I guess I'll just go about my business and leave you with yours.

Spot in Redwing.....the next boom areas are Agriculture and LNG.

Oops - I thought we just disqualified from consideration anywhere where there isn't 50,000 people already - like the vast majority of places where there is either Agriculture or LNG? Anywhere like that just isn't prudent of course...

 

[redwing]

Interesting couple of maps ref: LNG areas

Australia was touted as “the Middle East of Gas” at one point

 

[sash]

I don't know why you are taking it so personally. As I said it is my personal opinon...everyone is entitled to this. But I guess there a few on the forum who agree with me....and potentially also a few who agree with you.

Well I only invest in 50k plus...from an LNG perspective....Gladstone and Darwin come to mind......I'll let you figure the Agricultural ones with over 50k...plenty of them around. A clue....the growing of food or extracting of LNG in the area is not critical. It is what happens in the supply chain.

I seriously can't believe anyone is defending that statement but I guess I'll just go about my business and leave you with yours.



Oops - I thought we just disqualified from consideration anywhere where there isn't 50,000 people already - like the vast majority of places where there is either Agriculture or LNG? Anywhere like that just isn't prudent of course...

 

[HiEquity]

Just to note the City of Gladstone population is under 50,000 while the population of the areas within the Greater Gladstone Regional Council is over your threshold. If we are counting the population of entire regions then sure - we could be anywhere.

 

[sash]

I always look at the greater area of the city.......just like Sydney has 4.5m people. The Central Coast has about 500k in its catchment...Newcastle has about 700k....and Wollongong about 280k....Albury/Wodonga has about 90k....Wagga has about 60k.....on and on.....

Just to note the City of Gladstone population is under 50,000 while the population of the areas within the Greater Gladstone Regional Council is over your threshold. If we are counting the population of entire regions then sure - we could be anywhere.