Steve Navra's Rental Reality

[Kevmeister]

Was just revisiting Steve's web-site with his notes about Rental Reality.

Ignoring whether or not it's a good yardstick or not for the moment, at least it is a quantiable yardstick. It is based on mathematics, not gut feel.

Does anyone invest in property sticking religiously to Steve's Rental Reality rule?

My real question/comment, however, is whether you can reasonably assume asume buying at a value beneath the Rental Reality will always be achieveable. Could you potentially wait an entire property cycle waiting to see this happen?

What I mean is that whilst waiting for property values to drop to a particular value is time you are "out of the market" and therefore missing out on potential capital growth anyway.

 

[Mr. Fabulous]

Kevmeister,
This sounds like classic 'gambler's itch'. To those that don't know, gambler's itch is the psychological thought process that gambler's go through where they have to bet, or roll the dice or put money on the horse or whatever, just so they are 'in the game'.
Warren Buffet, the world's most successful shares investor got to where he is today by doing the opposite of what most others were doing. Part of his process was the very careful selection of shares, based on their currently being below their intrinsic value. Steve's strategy works in a similar vein. You simply sit back and wait for the right time, when the market, for whatever reason dictates that properties are currently trading below their intrinsic value.
Why buy just for the sake of buying, when the money you used to purchase a property that is now (not RIGHT NOW, but when it actually happens, now) no going anywhere growth wise could be being channelled into other investments that are making you real money today? Doesn't make much sense.
There are a number of people, it seems none on this forum, though, that could tell you that Steve's system works. But you must be patient. Don't get in the game, just to be in the game. If the numbers don't work in relation to the strategy you are looking at, don't buy the property.
However, at Steve's last seminar in Melbourne, there was some discussion relating to this. In essence, there are always opportunities out there, sometimes they are jsut harder to find. Just one more thing I wish to add: property is not the only form of investment...
Kev, I suggest you get along to one of Steve's seminars, I reckon it's a fair bet that you will be happy to hang back a little after you see what Steve has available to offer.

Mark
'no hat, some cattle'

 

[beech]

hi Kev i understand your point re property cycles and possibly sitting it out while the tide turns but there is so much else that one can do with property at this time.
I refer to the excellent information that comes our way via the very experienced Michael Croft.
His recent posts re property cycles was great and the various techniques he will use to keep the $ ticking over in times that we see now.(slowing down/expensive).
Im sure you have read them and if not chase them up.
I personally read everything he has to say,how could we not learn from his experiences.
As Mark says get along to one of Steves seminars,i went to the same one Mark did and it was great.
Im going again in Feb, taking a friend and will hear more about Navtrade from Steve before becoming another client of his soon after.


Darren

 

[Sunstone]

Dear Kev,

As you know there is a multitude of people that will tell you not to invest now in property for a million reasons.

Australia unfortunately does have a "tall poppy" syndrome where we feel comfortable "disencouraging" others or telling them what they are doing is wrong partly in order to justify our own situation. Possibly justifying a situation of only owning your own home (or less) and nothing more..............

In property stick to the fundamentals which Jan S outlines well.


Yes property is about numbers and do they make sense based on the yield and capital growth. Past this does the property fit into your strategy? Strategies are like goals. How will you know the right way to go if you do not know where you going?

Anytime is the right time if you 1) Crunch the numbers, 2) Have a defined strategy that the property in question fits into 3) Feel comfortable based on current/future property maintenance requirements and what the future planned developments are for the suburb and 4) Have built in your SANF (Sleep at night factor).

Investing is a mindset that should not be found at the casino.

Cheers,

Sunstone.

 

[Kevmeister]

Everyone, I am booked into Steve's course in Feb in Melb (I've even paid he he - so no last minute piking out).

I don't presently own any IP's, so Michael Croft's comments are only wishful thinking till then.

I certainly want to get into the market, but not prematurely, and not with a bad decision.

I like these "rules of thumb" like Steve Navra's Rental Reality equation because they are absolute. But rules such as these don't actually guarantee that over any given time period the equation will actually become reality. This is no different to someone saying buy XYZ stock when it's PE reaches A - it may never get there.

I guess perhaps I have to consider "markets within markets" and purchasing below Rental Reality in one area might be achievable whilst in another it may not.

 

[brains]

Kev,

Its impossible to eliminate 100% of risk in investment decisions, you can only minimise it as much as possible. You sound like you have done a lot of research and reading and thats great.

But theres no substitute for being in the swirling river, you either learn fast or sink. So as Nike says......just do it......

 

[Jas]

Originally posted by Kevmeister
I like these "rules of thumb" like Steve Navra's Rental Reality equation because they are absolute.

The rules might be absolute, but the data they are based on is somewhat fuzzy.

It's easy to find the sale price - the land title office has that information. The way Residex gathers rents is directly from the newspapers, which don't have a full listing of all the places, just a limited one.

It's like using the sale price to prove the median in a suburb. Too small a sample, too big a difference between the asking and the reality.

Steve's rule makes a good 'rule of thumb' I don't contend, but as an absolute.... no.

Jas

 

[Kevmeister]

Hi jas:

I agree that the data that the "absolute" rule is based on is somewhat fuzzy. I wasn't actually trying to say the data was absolute, just the rule.

In fact, the rule may not even work that well unless you are buying near the median property price. Yield is unlikely to be totally flat across the entire buying spectrum in a given suburb.

Thanks

 

[Mr. Fabulous]

Let me clear something up here. Steve's Rental Reality equation is only a small part of the whole. There are a number of other variables that must stack up before the property in question is purchase worthy.
All the rental reality equation really is is about knowing what is the maximum price you should be paying for the property. It is not the first and last determinant of whether you buy the property or not.
To view Steve's property purchasing guidelines in this way is akin to saying that the only factor to consider when purchasing shares is the price, relative to, say the company's intrinsic value. If you invest like this, you will surely fail. Don't miss the forest for the trees, Kev. Look at the equation as PART of the decision, not the decision itself.

Mark
'no hat, some cattle'

P.S. Steve, if I've gone right off the track, please don't hesitate to correct me!

 

[Kevmeister]

Hi Mark,

I wasn't suggesting that the Rental Reality equation is the only factor to be considered. But you have to admit that if it is going to be one of the considering factors then there are absolutely *heaps* of properties that fail this test, irrespective of any other metric used to evaluate whether a property is worthwhile purchasing or not.

I wasn't suggesting for a minute that any property which meets the "rule" is therefore a good buy. There are any number of reasons why it may still not be a good buy, even if it meets the equation.

In fact, a property might be priced quite low due to other reasons (eg. positioned in high flood risk zone), poor location, possible zoning changes later, etc.

I guess, ultimately, I am simply trying to understand the evaluation aspects of the purchasing process that make it more a case of using my head than using my heart.

 

[Mr. Fabulous]

Kevin,
Yes, I know there are very few properties atthe moment that will fit in this test, but that is due to the ridiculous prices people are paying at the moment.
And I do know what you meant in your posts. I realsie you're just trying to get your head round some new ideas - believe, I was in your shoes not that long ago myself (in regards to Steve's strategies).
As you would know, Steve's ideas are contrarian. But so are Warren Buffet's. Since I haven't started using the strategy yet, I must rely on other 'proof' that it works. And the amount of Steve's clients doing this right now (and Steve as well), and it working for them, is proof enough for me.
It's good to know that you are using your head to invest, rather than your heart, cause that tricky little bugger can get in you in trouble! Ha ha. Anywyas, have a great weekend, enjoy the sun!

Mark
'no hat, some cattle'

 

[Jamie]

Hi all,

Here comes the devils advocate

I agree with Jas here, that Steves method is great as a guide but in some situations and suburbs means that it might be a year or two before many properties come back to such a market reality. I went to Steves seminar this year and was mightily impressed by what I heard, and agree with his principal theories. But, if I remember correctly, at the seminar I attended Steve even mentioned that he had only recommended 4 developments/deals to his clients this year (at the time - please correct me if Im wrong Steve) such was the difficulty of finding deals that fulfilled his rental reality.

The example he used at the seminar was a Nth Shore suburb (cant remember exactly, but think it was Willoughby/Crows Nest etc), and the rental reality formula said around $450k should be the maximum to pay, while the average sale price was around $600k. As such, an investor would have a hard time justifying purchasing in this area according solely to the rental reality. But, does this mean an investor would not make a healthy return in these subrubs this year? Another problem in areas such as this is that we as investors are competing with owner occs who know nothing of the Rental Reality and buy with their hearts and not their heads.

I guess my point is that the rental reality is a valuable tool, and one I subscribe to, but there are other factors which need to be assessed as well (this is the part where Im agreeing with both Mark AND Kev!). The rental reality doesnt take into factors such as the ability to renovate/add value or redevelop the site, factors which I believe are just as important.

A thoroughly unconvincing post... just managed to agree and disagree with each of the previous posts in 3 paragraphs.

Best wishes,

Jamie