Surviving the soft depression

[Shadow]

The residential property market has collapsed 50%

Bank mortgages if you can get one after a two year savings qualification period are at 4.5%. The reserve has dropped its rate to 2%

Some form of rent control has been implemented so that landlord's are only able to pass on rent increases agreed to by a rent control board.

Under these conditions how will you survive, retain and build your property portfolio?

Cool. Mortgage rates of 4.5% and all property selling for half price. Hypothetically, the NBLs will probably be lending at even lower rates than this (and without the 'two year savings qualification period').

I'd be buying up bigtime! I'd buy all the cashflow positive houses in town and never have to work again! Of course, I'd be competing with all the other investors in town so we'd probably end up bidding up the property prices. Boom!

Nice scenario!

Cheers,

Shadow.

 

[handyandy]

Cool. Mortgage rates of 4.5% and all property selling for half price. Hypothetically, the NBLs will probably be lending at even lower rates than this (and without the 'two year savings qualification period').

I'd be buying up bigtime! I'd buy all the cashflow positive houses in town and never have to work again! Of course, I'd be competing with all the other investors in town so we'd probably end up bidding up the property prices. Boom!

Nice scenario!

Cheers,

Shadow.

Great plan if you can pull it off.

You will only be able to buy all those properties if you already have the money as banks would be very reluctant to lend on a falling asset.

I still believe that unemployment will be very high and as such everything will end up a basket case. This in turn will cause me problems as I will be rent relient - hopefully the Gov will come to the party and ensure that I get my rents to house the needy.

Cheers

 

[topcropper]

. The raw cost of food has dropped. Whether that flows through to consumers I don't know.

.

I'll just add this bit.

Food is complicated. Grain is the start of the food chain. I had the boom first, and other soft commodities followed through. The bust will be the same. I'm having my bust now, but the rest will be delayed.

My dairy farmer mate on this forum, pursefattener. He will probably have his best ever year this year. Dairy prices are done on yearly contracts, and the contracts were done recently, and they went up a lot. As well, he will be buying quality grain this year for $250 a tonne, or as low as $150 for pinched up or weather damaged rubbish. Last year he would have been paying almost $500 a tonne. Global dairy prices are coming down fast, but Aussie dairy farmers will have a boom year this year.

It will take a while for lower food prices to flow through in a 'deflation' situation.

See ya's.

 

[Ajax]

I think an answer is contained in your parameters-countries considering moving to a gold standard.

Buy gold.

Just read in the Irish Echo that Dublin airport has a problem with young Irish departing Ireland for better employment prospects overseas abandoning their cars at the airport.

Their car would probably their most expensive asset (same as with many young people in Australia)

 

[quoll]

building starts have plunged to levels last seen after the second world war.

The plan was going to move into building 3br2bth houses build 4 sell 2 or 3 keep 1 or 2 depending on holding costs.

With the very low building levels and a labour gov, we may see some nice incentives to build, which will assist the struggling housing building sector and keep people in jobs.

Building costs could drop, with house prices halved the cost of buying knocking down and building is looking better.

Current $300k house now $150, building cost now $150 each might stay the same or drop a little. So could build 3br for about $200 - $225 and rent for $300wk. Unkown incentives from Gov, unkown rental cap, unknown building costs but assume building cost don't increase too much as lots of material local, only tiles, fittings imported.

Where can I source funding from? Private equity!

Playing in the low end of the market, building very basic housing, aiming for the very average Joe tenant.

Regards
Graeme

 

[Shadow]

Great plan if you can pull it off.

You will only be able to buy all those properties if you already have the money as banks would be very reluctant to lend on a falling asset.

I'm reading NR's hypothetical as saying that prices have already fallen 50%. He didn't say they were still falling...

 

[Kenster]

In good economic time, people want a capitalist regime. In bad time, they want socialist.

This is what happens in a socialist society:

Essential things for basic living are expensive, like food, petrol, electricity, gas, telephone, council rates and water. Only locally produced food is affordable. People become self reliant, growing own vegie, fruit and chooks in their backyards.

Non essential things are dirt cheap, from houses, furnitures, cars to electronics, building materials. However, no one think about buying new since no one have any spare money left after spending on basic essentials. The exception is occational spending on alcohols. Any left over money will be saved and hoarded. Cheap second hand stuff is king. Expensive imported stuff is not affordable, except for gifting.

People expects government to help in everything, from education, hospital to free housing and free food (food stamps). Any problem with landlords and the like, people will report to government.

Government helps as little as they can get away with and expect everyone to feel thankful. Hospital hygienic standards is unseen of. Many safety standards will be out of the door. Free or subsidised education is back. National service is introduced to enlist youth working on big national infrastructure projects (like dams, new train lines).

Tall poppy will be cut down quickly. Fear is universal and everywhere. Patriotic activity is encouraged. Unpatriotic activity is severely condemned and punished harshly. Criticising government is a capital crime.

People lives closer. Weekends will be spent with family and friends. More times sharing a chat and food plates with neighbours. Long distance travel is past memory since petrol cost is sky high and rationed. User friendly services are back (like tram ticket sellers, lift attendant, helpers of all types).

Two distinct classes of people: The very very few elite ruling people that no body see since they live in separate enclaves with high security fence, electric gates and army guards. The rest 99.9% population looks poor the same, feels the same and smells the same.

Hoarding and saving is the way to live. Wealth is hidden, get buried somewhere where no can see. Banks are not reliable because they can go bust and are part of the big brother watching.

Tax is sky high and everywhere. Tax when we earn, when we spend and when we die. (US income tax was 80% during the depression and 94% pre WW2, not to mention state, consumption and other taxes)

Inflation is rampant but government statistics show everything is under controlled.

Secure jobs exist but low paid. Selective government jobs are good when people can get access to good, expensive things at preferrential prices. Small business is ok, especially those involved in essential products and services. Selective tradies will do ok. Black market dealing is rampant.

Bank finance is super hard to get since very few people can pass their stringent requirement. Government introduces its own subsidised, government scheme to help the poor. Main source of finance is private equity, thru mum, dad, brothers, sisters, cousins and the like. Base monetary yardstick is gold. Paper money is used for everyday exchage only. Interest is calculated monthly (not yearly).

 

[quoll]

I'm reading NR's hypothetical as saying that prices have already fallen 50%. He didn't say they were still falling...

Same here, prices on housing have tanked, bottomed out, gone as low as they can go. All that can happen is some serious sideways or maybe just maybe they go up.

 

[Sheryn]

My thoughts on surviving

The share market after further government intervention has stabilized at 2200

1. If the share market has stablised, I will be buying shares with good dividend returns - what I do not know as yet.

By April this year I will have 2 x IP's (4 x 2 x 2 house and a 3 x 1 x 2 duplex) and our PPOR.

2. If needed I will sell 1 or 2 IP's and take a capital loss.

Another alternative is
1) to pay out the loan on the duplex as it will be the smaller of the two loans.
and
2) to setup a SMSF and sell house IP to SMSF ( I wonder if I can do that at a capital loss too?).

What I am thinking is to keep everything equal 30% property, 30% cash, 30% superannuation (super as much as possible is in cash atm).

Leverage into correct market at the right time...when is the big question!!!

1. shares
2. property
3. cash


Comments welcome...

Sheryn

 

[DavidMc]

Hold on Kenster...

Petrol is an essential things for basic living?

Housing (shelter) is non-essential?

 

[Ausprop]

that's the thing Sheryn... trying to position yourself for deflation, inflation and timing it right not to miss the inevitable upswing that will follow is very difficult

 

[Sunfish]

Hold on Kenster...

Petrol is an essential things for basic living?

Housing (shelter) is non-essential?

We are totally dependant on oil for our standard of living. I doubt that coal fired steam could stop us devolving back to the middle ages. What we call "housing" today is really just another luxury.

We may be able to replace much of it (the oil, not the housing) with other technological innovations but we will need all the oil we can find to keep us going while we invent, design and build it's replacement technologies. At $50/bl shale or tar-sand oil is uneconomic as are all deep-water wells and off-shore drilling will stop. The large on-shore fields are depleting @ 10% per annum.

So I think Kenster is right.

 

[Aaron Sice]

Under these conditions how will you survive, retain and build your property portfolio?

2200 isn't even a fib level - that's a ludicours settling point to speculate on. 1700 is the 25% psych level, the 38.2% fib level is 2600.

me? i plan to bury my head in the sand and continue attempting to expand my portfolio. if not, i will turn back to the sharemarket and pull money down from the buy/write spreads with portfolio margining - shorting with pm'ing is classed as a covered short and is allowed.

what if Iran starts exporting oil in Euros? or Russia decides the Euro is better as well? or Yuan? gee whizz - that would uspet the D&G applecart wouldnt it?

while your predictions are well researched and i'm sure more experienced than i, only one or two major world events are needed to trigger another tangent of good or bad news. your model assumes that nothing wil change - but nothing OTHER than change is the only universal constant.

 

[Kenster]

Hold on Kenster...

Petrol is an essential things for basic living?

Housing (shelter) is non-essential?

Yes, petrol (or oil) is a basic essential. Like air, we don't notice it when it is there, but stop it for one moment, we'll die.

The main use of oil is for transportation, to move goods from one place to another.

It is used on diesel trains to move coals from mines to plants to generate electricity. It is used by farmers on farm machinaries to produce and harvest food. It is used by trucks to move food and other essential things from farms to processing plants, and to distribute the essentials to all locations around the country where people live and buy. It is used by oil tankers to move oil from oil rigs to refinaries. It is used by trains and buses to move people to work. It is used for cooking, for lighting cities, to generate power in offices, to run computers...​

In short, without this transportation, the basic structure of our society will collapse back to stone age when communal living started.

Oil price is exhorbitant during crisis time because of the severe devaluation of paper money and oil reservation for government and essential use.

Due to the worthless nature of paper money, oil seller wants gold but buyers can't pay because they are all broke. Any available oil will be reserved for basic transportation and the army. Only a small portion is made available to consumers who are eager to fill their tanks up, pushing retail price sky high.​

As with the Bretton Woods II, I can see the birth of a new international currency for international trading pegged to gold, since USD can no longer serve this purpose.​

Housing is non essential in hard time because it is low in the order of survival priority, well below energy, food, water, and electricity. People will grow well sleeping on a couch but they will die without the other four. When people needs shelter and can't afford, they can stay with parents, friends or even squat.

We will see a lot of squatting with implicit government approval.

(In the US, defaulted home owners are allowed to stay in the house)

 

[MarkandTina]

"There has been a complete financial melt down overseas with thousands of banks in the U.S. and Europe collapsing. Particularly hard hit are those banks with 4 billion or less capitalization."

Could this happen without someone letting off some nukes, I doubt it.

Makes me wonder what happens to my portfolio when Indonesia decides to invade Australia by nuking Sydney, Canberra and Melbourne, makes Darwin its regional capital and makes Adelaide, Brisbane and Perth the hubs for mining and agriculture.

In all seriousness, I dont believe it can get to the levels you suggest here without some radical changes in world politics, and then who knows what happens to the parameters.

 

[DavidMc]

We are totally dependant on oil for our standard of living. I doubt that coal fired steam could stop us devolving back to the middle ages. What we call "housing" today is really just another luxury.

We may be able to replace much of it (the oil, not the housing) with other technological innovations but we will need all the oil we can find to keep us going while we invent, design and build it's replacement technologies. At $50/bl shale or tar-sand oil is uneconomic as are all deep-water wells and off-shore drilling will stop. The large on-shore fields are depleting @ 10% per annum.

So I think Kenster is right.

Oil != Petrol. But yeah, I know what you mean.

There is housing then there is 'housing'.

 

[joe jo jo]

Makes me wonder what happens to my portfolio when Indonesia decides to invade Australia by nuking Sydney, Canberra and Melbourne, makes Darwin its regional capital and makes Adelaide, Brisbane and Perth the hubs for mining and agriculture.

Well at least or your debts will be forgiven if this happens

 

[Aaron Sice]

As with the Bretton Woods II, I can see the birth of a new international currency for international trading pegged to gold, since USD can no longer serve this purpose.​

and i've been saying it since forever....​

 

[nonrecourse]

Some posters are knotting themselves up about some of the parameters I have set in the hypothetical. I did not set an inflation figure because anyone who has lived 50 years knows that government published inflation figures are cooked and have been since we went off the gold standard.

As for employment; having arrived in Australia in April 1974 as a young man I remember well what 2% unemployment was. Today we are told that unemployment is 4.6..... ya right, another fairytale. In the good old days even the village idiot had a job operating the push button lifts Very few people were on the dole and they were the despised dole bludgers.

So the 6% unemployment level I set is 2% above the current government manufactured rate (vis a vis If your not looking for work your not unemployed)

I again ask you with this set of conditions how do you increase your property portfolio ? .... I will start it off with the first of our actions that we have implemented in the last year in the lead up to the soft depression.

As the lease options came up for renewal or renegotiation we requirred the tenants to pay all rents and outgoings via direct debits on a set date. This wasn't difficult most were delighted when we suggested that each year on the 1st of july we would provide them with a spread sheet with rents paid and outgoings for their records.

The monthly rental invoices are sent out on the first of the month through our quick books program that issues a pdf tax invoice. The invoices are emailed on the first of the month and the due dates are the 21st of the month. We then sacked our RE agent who was charging us 7% to take in the rents hold it for two weeks before remitting the balance to us. .... So we now have increased our cash flow by 7% and that money is in our account two weeks earlier. That 7% is set aside in a reserve account along with other monies saved to build a 12 month buffer of interest only and outgoings for each property.

 

[Kenster]

Under these conditions how will you survive, retain and build your property portfolio?

Since it will be easy to get cashflow positive properties, the key is in keeping tenants paying (to ensure a steady stream of cashflow) and getting capital for new purchase (either with outright purchase or with finance).

I can tell but I would have to kill you