Safe as houses

[BayView]

How true. I've been reading the doom and gloiomers, gold bugs, savvy investor columns and blogs, this forum and it's archives, youtube conspiracy documentaries and banks and RBA bulletins for months now and what is truly evident is the fact that no-one knows what is going to happen, many don't understand what just happened, and they all ready to stampede in the next direction if enough get spooked. They refer to markets as exhibiting herd behaviour for good reason as anyone who has dealt with livestock will know.

Based on this, we can't know what's going to happen; but we know what has happened.

If you do some reasonable DD on an area, find a good quality property in a desirable (or upcoming) area, that is priced correctly, or maybe a forced sale if you are extremely lucky, which has good depreciation and good yield, and are able to afford to buy it without straining the budget too much, then buy when you can.

I have known lots of people who keep "waiting for the big slumps before they buy", and they either never do, or they end up paying $50k more next year...

 

[RumpledElf]

Hey Julie
Sounds like we better buy some chooks and a solar panel for the car , I'm all over it.

hehe .. I have a forum for discussing that kind of stuff - http://simplesustainable.com ... I have the chickens, veggie patch, solar HWS etc. You can, amazingly, do that kind of stuff *and* develop property at the same time.

In fact I'd say it works quite well - when you have a passive income (which we don't yet *sigh*) you have lots of time to make your own jam, smell the roses, and talk to your chickens.

 

[JulieW]

LOL Blaster. I've kept chooks and they are wonderful and such dinosaurs its amazing. Solar panels on the car - not sure about that one but I'm too creaky for the pushbike on this bike to work day.

I've in mind the two sayings: Don't count your chickens before they hatch - very useful when expecting capital growth.

and A chook in the pot is worth two that are not - meaning don't lose sight of what's in front of you and real.

Oldies but goodies.

And you could do worse than buy a chicken ranch. I doubt food will be part of any deflationary cycle anytime soon.

thanks for Simple Sustainable link Rumpled Elf. Very useful and is making me think about the advantages of an acre or two, a few chooks and a veggie patch. Now about the rural water question....

 

[chilliaa]

I have known lots of people who keep "waiting for the big slumps before they buy", and they either never do, or they end up paying $50k more next year...

Hey thats me
Big slumps do come along every several years. The trouble is everyone is waiting for the 'big slump' in australian residential property markets.
I just wait for big slumps anywhere in the world in an asset class i understand and with regards to exchange rates.
Allows me to participate in many more opportunities, but the downside to this strategy is you need to quickly build cash reserves to participate in such opportunities. To achieve this i start disposing of current assets once they exceed their intrinsic values.

In regards to australian residential property, i'm waiting for melbourne cbd apartment prices to appreciate another 5% and then i will start disposing one property for every 5% rise.
Given purchase prices in 2007, this should result in a return on purchase price of around 56% and return on equity (20% equity 80% debt) of 280% over 2.5years for the first property disposed and obviously higher if the remainder are sold.

 

[BayView]

Hey thats me
Big slumps do come along every several years. The trouble is everyone is waiting for the 'big slump' in australian residential property markets.
I just wait for big slumps anywhere in the world in an asset class i understand and with regards to exchange rates.
Allows me to participate in many more opportunities, but the downside to this strategy is you need to quickly build cash reserves to participate in such opportunities. To achieve this i start disposing of current assets once they exceed their intrinsic values.

In regards to australian residential property, i'm waiting for melbourne cbd apartment prices to appreciate another 5% and then i will start disposing one property for every 5% rise.
Given purchase prices in 2007, this should result in a return on purchase price of around 56% and return on equity (20% equity 80% debt) of 280% over 2.5years for the first property disposed and obviously higher if the remainder are sold.

Nicely done, C.

That's why you are in the 5%!!

Rob Kiyosaki calles this the "velocity of money" I believe.

 

[Ausprop]

Kiyosaki is a yank tho with very different tax laws. by the time you sell up, discharge mortgages and pay off agents and taxman you are often no better off - may as well ride the longer trends. if it means finding properties that are yielding better so be it. I found with developign you are often better refi-ing on completion than selling...if the holding cashflow doesn't kill you. renters get such a free ride that even this strategy can be challenging.

 

[Jasc]

Very useful and is making me think about the advantages of an acre or two, a few chooks and a veggie patch. Now about the rural water question....

You dont necessarily need a rural farm to grow alot of veggies check out www.backyardaquaponics.com.au

We have a set up at home which supplies us with most of our veggies all year round and we get a good feed of fish and marron from it as well.

 

[BayView]

Kiyosaki is a yank tho with very different tax laws. by the time you sell up, discharge mortgages and pay off agents and taxman you are often no better off - may as well ride the longer trends. if it means finding properties that are yielding better so be it. I found with developign you are often better refi-ing on completion than selling...if the holding cashflow doesn't kill you. renters get such a free ride that even this strategy can be challenging.

Have to agree.

The transaction costs with Aus property wipe out lots of gain, so it has to be very very good to even bother.

Not to mention the angst and stress associated with it as well.

I prefer to hold, access equity and go again.

The critical factor is the cashflow.

 

[chilliaa]

Have to agree.

The transaction costs with Aus property wipe out lots of gain, so it has to be very very good to even bother.

Not to mention the angst and stress associated with it as well.

I prefer to hold, access equity and go again.

The critical factor is the cashflow.

There is no right and wrong answer. I agree with your points and Aus property as well. But for me its a personal decision.

I prefer flexibility and if the consequence is paying some tax on the gains, so be it (however i do try to hold an asset for longer than 12 months so i can get the CGT discount).

I am also nervous of holding large amounts of debt indefinately.
One of the reasons for the carnage in the equity markets during the GFC was the use of debt to purchase shares (i know this is different to residential debt because it is marked to market every day and hence inherently more risky).

 

[BayView]

I am also nervous of holding large amounts of debt indefinately.
One of the reasons for the carnage in the equity markets during the GFC was the use of debt to purchase shares (i know this is different to residential debt because it is marked to market every day and hence inherently more risky).

I have no problem holding larger levels of debt now, but I still always try to minimise it at every opportunity.

I was having a conversation with my brother a few weeks ago about investing, etc. He is on the first rung of the ladder, currently has about $120k in debt spread across his PPoR and business, and is keen to get it down. It worries him.

When he asked me what our debt was at - which is over the $mill mark - and I told him; he nearly had a coronary. Mind you; it's all investment debt these days.

But, the income is commensurate with that debt, and it's a "climatisation" thing I reckon, you get to become comfortable with each level you get to.

Mind you, I don't have much in the way of shares, my future is not hinging on my super, so my SANF factor is very low.

My mindset is that I'll get into shares eventually, but it will be with the play money - I can't be bothered doing a massive learning curve to become good at trading to try and do quick deals, and sit around the screen all day watching for the opportunities.

 

[chilliaa]

I have no problem holding larger levels of debt now, but I still always try to minimise it at every opportunity.

I was having a conversation with my brother a few weeks ago about investing, etc. He is on the first rung of the ladder, currently has about $120k in debt spread across his PPoR and business, and is keen to get it down. It worries him.

When he asked me what our debt was at - which is over the $mill mark - and I told him; he nearly had a coronary. Mind you; it's all investment debt these days.

But, the income is commensurate with that debt, and it's a "climatisation" thing I reckon, you get to become comfortable with each level you get to.

The level of debt should also be considered against total income, both from the underlying assets and from the major income stream, whether thats labour income or income from a business.

Ive got gross assets of roughly $5m now but total debt of $2.6 million. The assets are split roughly 46% property, 46% shares and 8% business. Ive got only a single source of independent income and thats my last business, the profits of which are immaterial relative to the debt.

Good debt is only 'good' under two circumstances:
1) net cash flow is positive and the interest cost is fixed and the debt isnt marketed to market against the asset; or
2) the underlying asset is appreciating.

Sometimes intelligent investing is about protecting your 'downside' risk.
At the moment i have 5 properties so i have lots of 'skin in the game'.
If the market continues to rise and i gradually sell some of the properties to reduce debt i reduce my downside risk (i will do the same strategy with the share portfolio).

Reflect back to this forum during the height of the GFC.
There were some Somersofters who
1) panicked and said they were selling to reduce debt (ie they were not controlled sellers they were reacting to circumstances. Its always better to act than react).
2) wished they could have taken advantage of cheaper prices but could not because they were already fully leveraged.
3) used the GFC to their advantage and bought more property because they could.

Now generally speaking, i prefer to be able to be in category (3). Why? because not only are the returns GREATER, but the investment is SAFER.