Real Value Adding

Real renovators are builders. Lot of people renovate thinking that they are adding value. I am a renovation sceptic. Did this a few times and realised that it is the market that increases the value rather than the renovation. Try renovating when the market is not moving and see how much value you add. Builders genuinely increase value by taking a raw piece of land and building in any market and making a profit.

I am a speculator. Lots of fools who think they are investors are deluding themselves by buying and holding and praying that the value will go up. There are several problems with this approach. If the area turns bad due to crime etc you need to get out quickly. If there is toxic waste or other environmental disaster your investment will have a negative value. You could get sued for different reasons.This shows that buy and hold is a very risky strategy.I deliberately define myself as a speculator so I remain vigilant to these risks. Buy and hold is a mugs game. The risks are too high. Be very wary of people who advocate this strategy. Think of developers who build sell and move on making millions who pass on the risk to buy and hold fools who increase their risk through negative gearing. Nobody knows what is going to happen in the long term.
 
So if you buy a property and the next day a toxic waste dump moves in next door that is run buy criminals. Well sure you are f##ked. That happens sooooo often. Doors that way chump.
 
That's interesting when you say I don't have a clue. I have made a substantial amount of money in real estate after I gave up negative gearing and renovations and gave up being an "investor" thus reducing my risk.
 
I am a renovation sceptic. Did this a few times and realised that it is the market that increases the value rather than the renovation. Try renovating when the market is not moving and see how much value you add.
That can be true. However, it really depends on the skill-set of the renovator. In a flat market a $20K spend on a reno can add $30-40K to end val. But in a rising market that $20K reno can give the illusion that it added $60K to the val when in reality the "market" actually added $30K of it!

This shows that buy and hold is a very risky strategy. Buy and hold is a mugs game.
Well of course you are entitled to hold that view for yourself but many, many people have done well from this strategy. If its not for you that's fine. Find something else that floats you boat but you don't have to bag a proven strategy.:rolleyes:


Think of developers who build sell and move on making millions
There are 2 types of developers that I've seen and worked with in a previous career that lasted over 15 years:
Type 1: Buy land, develop, sell all, take the money, repeat. Occassionally go bust when the market moves against you.
Type 2: Buy land, develop, sell most, keep some (hold forever), repeat.
It is the last type that become very wealthy - ala Harry Triguboff of Meriton - who most always keeps either the penthouses or a floor or so of apartments in each high-rise he does.
The first type often retire broke having spent all their earnings and having kept none of their own stock.:eek:
I guess these types of individuals exist in every industry - not just property development.

Nobody knows what is going to happen in the long term.
Although that statement has an element of truth in it, it is also true that if you do nothing to invest you will retire broke and on the pension if you're lucky.
 
I'm grateful for developers like speculator who are willing to do the hard work for a one-off profit, and leave me to collect the much larger profits over time for doing nothing (or "not much"). Thanks!
 
.....another 2 count poster who we shall never hear from again.

SS must have 10,000 of these guys racked up by now.
 
Your reply makes sense and validates my point about developers. The guys who hold on to part of the development have already taken their profit and are holding at zero cost. Their only cost is opportunity cost. Lots of long term investors and renovators in USA are going bankrupt. The other point about renovation is people don't take into account their own time and cost spent doing the renovation.

There are several ways to skin the real estate investment cat and buy and hold is one of the riskiest as there are no guarantees. Real estate doubling in value every 7-10 years is going to be pie in the sky in the future.Short term opportunities give a better return at a lower risk. Lot of people hold on because they think that they have to pay tax if they sell. It is better to make 80k per annum after tax than to make 50k per annum without paying tax by not selling. This is a case of the tax tail wagging the investment dog. If you take the two greatest real estate investors in the world Sam Zell and Tom Barrack this is how they make money. Barrack bought the Fukuoka stadium in Japan working out that the Titanium in the dome was worth more than what he was paying for the stadium. He wasn't planning on holding long term to get his return. Donal Trump doesn't even make the cut compared to these two guys. If you take the two best speculators in the stock market over the last 30-40 years George Soros and Stanley Druckenmiller ( at 40% compounded per annum much higher return than Warren Buffet) their strategy for long term capital growth is not to lose money in a bad year and to hit home runs in the good years by getting in and out of positions quickly. As Druckenmiller says it takes courage to be a pig. We can't replicate these guys but learn from their strategies and long term buy and hold is definitely not one of theirs as they know that nobody can control the future.
 
If the area turns bad due to crime etc you need to get out quickly.

Fortunately this assertion can be easily tested.

Get a list of today's highest crime suburbs (from the police website) and note their average house prices today.

Then look up their median house prices 10, 20 or 30 years ago.

You will find that not one Melbourne 'high-crime' suburb has a lower median house price today than 10-20 years ago. Substitute unemployment or low incomes for crime and you'll find the same pattern.

Furthermore high crime suburbs might not be in the areas that we all think - some areas with lots of some types of crime are amongst Melbourne's most desirable: http://www.150.theage.com.au/view_bestofarticle.asp?straction=update&inttype=1&intid=1811

At least in metropolitan areas, I conclude that there is no need to 'get out of an area quickly' due to crime or the fear of it 'going bad'.

'Getting out' is however more justified for (i) small inland country towns because of declining populations, jobs, services and amenity and (ii) where much better value presents itself elsewhere (although too much chopping and changing is a wealth hazard due to transaction costs).
 
That's interesting when you say I don't have a clue. I have made a substantial amount of money in real estate after I gave up negative gearing and renovations and gave up being an "investor" thus reducing my risk.

Interesting..... we have made a substantial amount of money in real estate by negative gearing and buy and hold :p.
 
Type 2: Buy land, develop, sell most, keep some (hold forever), repeat.
It is the last type that become very wealthy - ala Harry Triguboff of Meriton - who most always keeps either the penthouses or a floor or so of apartments in each high-rise he does.

C'mon m8, Harry made his $$ as a developer, even though he does keep some.
The only reason he did not sell was because resale value was shithouse.
Also to note he has hardly any debt.
He does'nt go to MB's like yourself to ask for loans, he does the opposite, he finances the buyers. And how many here donate to both major parties and pay retainers + case by case extras for political influence?
Harry is in the business of selling & financing. His on the opposite side of your customers (as are all the other BRW200 with RE next to their names).

It's misleading that those selling RE and it's related services use them as "icons" of buy & hold RE investment.
They are NOT.
 
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I thought prop was a BA not an MB? :confused:
Cheers,
The Y-man

Yes that's correct, my error.
He's a Buyer's agent, who's customers are also on the opposite side of Harry's transactions.
Harry is the typical case of the power of low debt, which is the opposite of what BAs , MBs & REAs preach.

I am a renovation sceptic.
But let's keep the perspective here, I hold and have held development property, some for ~20 years.
But I too think that in a booming market rennovating is a "mugs game".
When a market is taking off, you should'nt have time to sand floor boards and replace kitchens.

This shows that buy and hold is a very risky strategy. Buy and hold is a mugs game. The risks are too high. Be very wary of people who advocate this strategy. Think of developers who build sell and move on making millions who pass on the risk to buy and hold fools who increase their risk through negative gearing. Nobody knows what is going to happen in the long term.

I've bought & hold what every RE book (and most here) tell you is the worse investment you could make.
So while I certainly agree that you should'nt conform to some else's model and encourage independent thinking, it's all relative.
 
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good point though

Anyway, I'm glad to see the different point of view from Speculator. You know it's always good to be open to listen to different thoughts. Maybe some time those thoughts don't fit you well at this moment, but who knows if they are just right sometime in the future. Keep all of them in mind, be flexible with our investment/development/renovation strategy, the final point is to reach our goal(financial independent, comfortable retirement etc) , instead of struggling with what's the best way to get there for everyone.

I believe every industry including real estate of course, and every specific property/block of site, or any individual, they are all case by case. Choose the one which you believe is the best for you upon a specific property.:D
 
Real renovators are builders. Lot of people renovate thinking that they are adding value. I am a renovation sceptic. Did this a few times and realised that it is the market that increases the value rather than the renovation. Try renovating when the market is not moving and see how much value you add. Builders genuinely increase value by taking a raw piece of land and building in any market and making a profit.

I am a speculator. Lots of fools who think they are investors are deluding themselves by buying and holding and praying that the value will go up. There are several problems with this approach. If the area turns bad due to crime etc you need to get out quickly. If there is toxic waste or other environmental disaster your investment will have a negative value. You could get sued for different reasons.This shows that buy and hold is a very risky strategy.I deliberately define myself as a speculator so I remain vigilant to these risks. Buy and hold is a mugs game. The risks are too high. Be very wary of people who advocate this strategy. Think of developers who build sell and move on making millions who pass on the risk to buy and hold fools who increase their risk through negative gearing. Nobody knows what is going to happen in the long term.

I ganna chip in here, and back this to a certain extent.

Lets break down to two categories,

People whom purchase and look at the market and people who purchase well under value reno for profit.

There is no good speculating, because your only making an educated gamble.

There are many ways of making money in realestate, it depends on what your stratergy is. As long as you make a profit your heading in the right direction. However for me, if i do reno I want to either do it to make a property habitable or do the reno because I am going to get a gaurenteed dividend well exceeding any time, energy or effort taken to execute the project.

For me I never buy oon the hope of one day, it either makes good cashflow from day dot, or gives good equity/profit (from selling) straight away.

I have held the negative geared stock, and still hold quiet a few big negative properties, and agree there are a lot of speculators you must have a plan, and your plan must include a gaurentee of exiting with your profit. A lot of people dont do this, hence why I tend to pick up a lot of stock cheaper then the vendor paid for it 3-5-10 years prior.
 
It's interesting to hear all the different views. I didn't go into detail on the techniques that I have used mainly in Camberwell , Surrey Hills and Canterbury and UK but was focussing more on the concept itself. I have a long list of techniques that l use and over 300 mistakes to avoid. The following is how the master himself approaches real estate investing. By the way he lives next to Michael Jackson's neverland and owns Neverland's mortgage. Once you start thinking outside the buy and hold concept other options become clearer.

http://money.cnn.com/magazines/fortune/fortune_archive/2005/10/31/8359143/index.htm
 
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