Steve Navra at SIG 25th January 2005. book now...

[quintets]

One thing troubled me a bit, though. I noticed that 5% was the suggested rate of returns on which to base decisions, but actually, total returns of 10% were claimed for both property and shares - via capital gains and income? Or was I missing something?

I think he meant that you PLAN to be financially independent where all of your rates of return are 5 percent. If you get more than 5%, then any extra you get is a bonus. For Steve, the key aspect is to get as many 5%s going as you can. There were six items possible ways.

PPOR-Save on rent - 5% after you've paid off the house. (I still don't understand this. How does money not spent automatically earn me 5%).
PPOR-Capital growth - 5% is a fairly conservative assumption. He had 6.9% in his example.

IP - 5% yield
IP - 5% capital growth

Shares - 5% dividend
Shares - 5% growth. He had 10.9% in his example

It's 30% gross and about 15% yield after tax and costs. If you're getting 15% on the asset value, that's pretty good.

Mind you, if the asset value for the shares and IP value may be less than the amount you have on your house. Especially if you're starting out as a young family. eg. $400,000 house with $200,000 mortage may only leave $120,000 equity (@ 80% LVR) to play with. But you spin that into one IPs at 5%/5% and then after a bit of growth in the IPs, draw down the equity to place in shares.

After a bit of time, the shares may be more than property, or you may decide to focus more on property if that's your style.

Thanks to Peter for organising and to Steve for what was a very interesting talk.

Jireh

 

[GreatPig]

Jireh,

How does money not spent automatically earn me 5%

I think the idea there is that if you were renting, the rent you'd be paying would be a 5% outgoing, so by not paying it you're effectively making (saving) 5%.

But I could be mistaken. I was busy scribbling more than listening at that point .

And thanks to Steve for a great presentation, and to Peter for the organisation.

Cheers,
GP

 

[AdamN]

I hope you all plan on taping Agassi vs Federer. Should be a ripper.

Sadly, it wasn't.
More importantly, I hope at least one of you was taping Navra vs SIG ? (so that those of us who couldn't be there will still get an opportunity to see what was presented at the rare event...)

 

[Timmsi]

Agreed - it was a great presentation! Thanks Steve.

I know my wife was doing a lot of talking on the way home - we are going to sit down and really focus our goals and the direction we are heading.

Unfortunately I missed most of it looking after our little one (apologies if he disturbed anyone ) and walking around the block a few times and almost having him asleep I get back and it's finished!!!

However, the better half got it all which is the important part.

Peter

 

[kissfan]

Hi all.

Also enjoyed last night. Every time I see Steve, the concept of cashbonds sinks in ( to my thick head ) a bit more. Thanks Steve for giving up your time and thanks Peter ( & others) for the organising of this event.

Regards
Marty

 

[LearningMan]

Thanks to Peter ( & others ) for organising this event and Steve for a FANTASTIC presentation !

It's so rare these days to attend a FREE evening in a great venue with like minded folks and actually LEARN something.

One question ... does anyone think it's possible to find property that fit the rental reality valuation Steve covered in either Sydney or Melbourne ?

 

[Steve Navra]

One question ... does anyone think it's possible to find property that fit the rental reality valuation Steve covered in either Sydney or Melbourne ?

Hi LearningMan,

Yes I think it is possible!!
I have just found two such properties in Sydney and am considering another in Melbourne. (All 3 fit within Rental Reality pricing) Yes they are still rare, but the markets in the two cities are moving back towards reality value.

Thank you to all who attended, it is wonderful for me as a forum member to get the opportunity to meet up with so many other like minded investors.

Regards,

Steve

 

[Peter 14.7]

Dear All

An official SIG thankyou to Steve Navra and his team.

Not only did you:

1. Keep 90 plus focussed for 90 minutes.
2. Hanged around afterwards to chat and network.
3. Talked about shares and still (refer point 1)

But you truely are a Guru.

Mrs 147 despite saying "at times i was bored" has since asked many questions/made points about what you said and how we ( aka I ) relate with our $$!

Obviously it sinks in, even at a sub-liminal level.

Now to be one of to 20% who act.

Remeber:

Steve said 80/20% rule applys:

80% do nothing and 20% come to seminars/read books/frequent forums

Of these 80% fail to act and 20% do act

Of these only 20% get it right but doing the ahrd work, due dilligence, etc..

Peter 147

PS Email on the way.

 

[Fat_Bastard]

what is rental reality?

 

[GreatPig]

what is rental reality?

Rental reality is comparing the rental yield that you would actually get from a property to the average rental yield for the area (postcode) over the last five years. If the actual yield is lower than the five year average, then the purchase price is too high.

Or, working backwards, dividing the rent you would actually get by the average yield over the last five years would give you the maximum purchase price that you should pay.

GP

 

[quintets]

what is rental reality?

Hey FB!

The primary use of rental-reality is to provide market-driven sanity check on housing prices. Instead of using the current views of a bank or valuer or real estate agent to determine what a good price for a area is, you use a price based on the long-term average of the rental yield.

Although rental prices approximate an area's desirability, rental prices don't move as much as housing prices do. Rental rates, however, provide a reasonable average against which to compare housing prices.

For instance, if the rental on a particular house is $300/wk ($15600 pa), then if the area's five year average yield is 5%, then the $15600/5% = $312,000. If the price is below that, then it's probably a good bargain. A higher yielding area would mean even a lower price.

Residex provides historical data on rental yields. Although you could probably check if your local library has Australian Property Investor magazines. They have yield and price histories going a ways back.

For more details, check www.navra.com.au

Jireh

 

[quintets]

Agreed - it was a great presentation! Thanks Steve.

I know my wife was doing a lot of talking on the way home - we are going to sit down and really focus our goals and the direction we are heading.

Unfortunately I missed most of it looking after our little one (apologies if he disturbed anyone ) and walking around the block a few times and almost having him asleep I get back and it's finished!!!

However, the better half got it all which is the important part.

Peter

Congrats for braving an evening seminar with the little one. I didn't hear him very much. Seemed like a very well-behaved boy.

Jireh

 

[MichaelW]

Peter 147,

Ditto. My wife was a bit reluctant to come along, but certainly got a few gems out of it. She was already onboard to the REI thing, but we differed on some aspects of approach. She consistently stated one of her selection criteria was "Don't buy something you wouldn't live in yourself" and I said "Who cares, as long as a tennant would live there". Well, Steve put pay to my argument and in doing so validated my wife's thought process. This was great as I could concede that she knows what she's talking about and get her even more onboard with the whole process.

We're leaving for a 5 week holiday in Africa in a fortnight's time, so unfortunately I'll miss Steve's next Sydney seminar. But when we get back we'll be aiming to buy another IP in Sydney's northern beaches so long as it fits the rental reality check. This won't be easy and may take a lot of work to find. But, we need to do something with over $700K in equity we've got that is effectively lazy dollars right now. Mortgage is under $200K and doing repayments easily, and have a lot of cash parked in the bank in the offset account.

I might PM Steve on our return and hook in to his next seminar or maybe get a 5 minute appraisal on immediate next steps.

A great presentation that was closely aligned to my existing thinking so hit the target.

Thanks Steve,
Michael.

 

[likewow]

This might seem a bit contrary considering the overall tone of this thread.

My opinion is the flaw with rental reality is this:

If an area has a very low gross rental yield of 2.2% for the last 5 years and the property youre looking to buy in that area has rental reality yield of 2.3% meaning it is just below the median price which looks like a good buy.

Does that mean you should buy the property in the current market? I wouldnt think so.

Rental reality only compares properties in a particular suburb/town. If that suburb/town has the lowest yield in the country the rental reality still works for a single property but it still doesnt mean that suburb/town is a god buy.

Theres a thousand and one other considerations to take into account beside rental reality.


Michael,

I wouldnt live in any of my IPs.

If you subscribe to the theory of 'i wouldnt buy an IP i wouldnt live in' does that mean as your wealth increases do you have to sell your high yielding IPs in less affluent areas and upgrade to IPs that you would live in?

If you're doing very well in years to come will you only buy IPs in the same wealthy suburb that you live in? (or equivalent standard)

Theres plenty of wealthy landlords who own IPs they wouldnt live in, in fact i would say the majority. Its not a prerequisite for getting wealthy through property.

On the surface it sounds good but its a flawed concept under scrutiny and if i didnt have a hangover i could think of a few more reasons

 

[MichaelW]

Likewow,

Rental Reality is just Steve's "price" determining approach. He specifies a whole lot of other criteria when selecting appropriate investment properties, and they are the same ones most of us already use. He just adds "another" check based on historical rental yield to determine purchase price. It doesn't work in isolation.

I also get where you're coming from with "Would I live in it?". Remember, my argument was always who cares. I think it does hold a lot of merit, and allows us to rule out the dead properties at the bottom end. Its not really a question of "Would I live in it today given my wealth and living standards?", its "Would I be willing to live in this property if I wasn't in the top 2%?" Basic hygiene, space, location, crime etc tests need to pass muster before I'll buy something.

Cheers,
Michael.

 

[likewow]

Michael,

I understand that but whet if your wealth has increased significantly in 5,10, 20 years and so have your standards.

But as for now, of course no one wnats to buy a dump for an IP but i dont think the idea has merit. I think its more to do with personal opinion (or taste) than making money. But we all invest in our own ways and thats what makes it all so interesting

 

[Steve Navra]

Michael,

I understand that but whet if your wealth has increased significantly in 5,10, 20 years and so have your standards.

But as for now, of course no one wnats to buy a dump for an IP but i dont think the idea has merit. I think its more to do with personal opinion (or taste) than making money. But we all invest in our own ways and thats what makes it all so interesting

Hi likewow,

My thoughts are more on the following basis:

1) Buy property at the particular city median price PLUS 20%.

Why???

a) Simply because this will direct you into areas with a higher owner to renter ratio.

b) The more owners in an area; the greater the capitalisation in the area will be. The reason for this is that live-in owners tend to improve their properties far beyond what investors do. This results in areas with a greater owner ratio experiencing better long term CG than areas with a greater renter ratio.

c) As an aside, "dogboxes" tend to attract a lesser quality of tenant and it has been my experience that this class of tenant generally prove more difficult to manage. (This factor is more to do with hassle free manangement.)

The statement about only buying a property that one COULD live in; is not judgemental . . . in other words does not reflect one's personal wealth or taste; rather it reflects what is reasonable for the average tenant.

Factors in this assesment include:
Schools, shops, transport, crime, convenience and ambience.
In other words all the factors that will make the property an attractive proposition for a reasonable tenant.

Regards,

Steve

 

[shazza]

I agree about the livability issue for IPs. And I dont mean I couldnt live in a bathroom without gold fixtures or the walls are apricot instead of cream. As a mother I would look at - would I bring my children into this house? (I know emotion).
And if a tenant is content to live in a slum how much respect will they have for your property and how long will they stay? Maybe they'd only want a dirty dingy place because they're desperate and when something better comes along they're off.
Everyone has different criteria but to quote Alicia Keyes - "its called Karma and it comes around".

My 2c.
Sharyn

BTW Michael you would have earned lotsa brownie points with Mrs Michael for agreeing with her!

 

[Sultan of Swing]

a) Simply because this will direct you into areas with a higher owner to renter ratio.

b) The more owners in an area; the greater the capitalisation in the area will be. The reason for this is that live-in owners tend to improve their properties far beyond what investors do. This results in areas with a greater owner ratio experiencing better long term CG than areas with a greater renter ratio.

That has to be one of the best little gems I've got off this forum.

Being in regional/rural Australia, I don't know that it will make a lot of difference here but certainly something I'd never have thought of and will certainly keep it in mind.

Thanks

 

[likewow]

Hi likewow,

My thoughts are more on the following basis:

1) Buy property at the particular city median price PLUS 20%.

Why???

a) Simply because this will direct you into areas with a higher owner to renter ratio.

b) The more owners in an area; the greater the capitalisation in the area will be. The reason for this is that live-in owners tend to improve their properties far beyond what investors do. This results in areas with a greater owner ratio experiencing better long term CG than areas with a greater renter ratio.

c) As an aside, "dogboxes" tend to attract a lesser quality of tenant and it has been my experience that this class of tenant generally prove more difficult to manage. (This factor is more to do with hassle free manangement.)

The statement about only buying a property that one COULD live in; is not judgemental . . . in other words does not reflect one's personal wealth or taste; rather it reflects what is reasonable for the average tenant.

Factors in this assesment include:
Schools, shops, transport, crime, convenience and ambience.
In other words all the factors that will make the property an attractive proposition for a reasonable tenant.

Regards,

Steve

Thats not a bad strategy for good consistent growth as long as the yield supports it and sometimes thats a bit difficult in predominatley owner occupied areas depending on the time of the cycle purchase (like now).

Regardless of the timing you will rarely get fantastic yields at any time in these areas because of the good growth. Mostly not a good stratgey for pos/neutral cashflow investors.