The 2009 property market - by Michael Yardney

[want2bewealthy]

Whats he saying? I cant get it on my computer. .

I was reading through this months edition of API and all investors are saying the same thing, basically keep a buffer, some are still purchasing, some arent, but none seem too phased about it, most of them have a very substantial portfolio already well established so it probarbly doesnt phase them too much anyway.

 

[Muffinman]

Property Investment Update Dec 08

Hhhmmm


Watch "Property Investment Update Dec 08"

 

[Token Funder]

Timing is important however 'doing something' (anything) is more important than timing.

...and yet.....

I'm not buying now. Last purchase was 1.5 years ago (but that was a PPOR). Maybe in 6 months time when stuff is more CF neutral/positive.

Doing "anything" leads to tears. I was looking at a couple of files last night where doing something/anything just cost a pleasant old couple their IPs and their PPOR.

You know the drill...buy now, use OPM, property always goes up over time, use equity to fund more pruchases etc. etc.l They boughtin Sydney between 2002 and 2005, geared, planned to LOE and..shock horror....CG wasn't what was expected, as a consequence their "income" wasn't available and *kaboom*.

It's investing, people!!

 

[DavidMc]

History has shown us that people who do that consistently, over time, whilst managing their cashflow (and risk) end up doing pretty well. Even if they are 'dumb' and couldn't pick the timing

Doing "anything" leads to tears. I was looking at a couple of files last night where doing something/anything just cost a pleasant old couple their IPs and their PPOR.

Thank you for adding weight to my original statement and reminding people to manage their cashflow and risk.

You only get a situation like the one your described if you stop paying your loans, so obviously they didn't.

If they did hold on for another 10-12 years I'm sure they would have done quite well.

 

[lizzie]

as we get older, timing gets more important.

personally we've only probably got one more boom period in us before we want to retire, before we get to old to enjoy the fruits.

i know - people travel and jaunt and carry on in their 70's and 80's, but personally we'd rather do it in our 50's and 60's.

authentic african safari, hiking, eastern marketplaces, eating and drinking our way around western europe etc, camping overnight at gallipoli - all things i'd like to experience before i need the supersized nappy.

 

[StuartW]

I've stopped paying attention to Michael Yardney's numerous 'property updates'.

He seems too much of a property pusher for me. He keeps quoting reasons to buy now while ignoring the downside risks. He has done that throughout most of this year, when the market clearly changed direction.

Does anybody remember when did he advise NOT to buy now?

Contrast it with Bill Zheng, who at least changed his tune this year when he realised something fundamentally different than a short term slump was occurring.

Cheers,

IMHO, Bill markets himself using fear as a motivator.... so does the general media. There's nothing wrong with that as long as you believe something fundamentally has in fact changed.

Michael generally says its always a good time to buy a good quality, well located investment property. It's not about market timing. Its about taking a long term view and investing in quality assets (be it shares or property). Nothing fundamentally has changed in Australia - it's just a cycle. I respect Michael, his opinion and the fact that he promotes sticking to fundamentals.

I believe that Michael has been buying lately so he is doing himself what he is advising people do. That's important.

 

[House_Keeper]

Nothing fundamentally has changed in Australia - it's just a cycle.

Are you kidding me?

As a mortgage broker, you haven't noticed ...

• the number of financiers who have pulled out of the market
• the end of no doc loans
• the tightening of lending criteria
• the higher price that AAA banks have to raise funds from overseas

Cheers,

 

[DavidMc]

You could say that property investing has been working well in Australia long before things like GE Money, Bankwest, No Doc loans, Lo Doc loans, 90-107% LVRs, loose lending critieria and the like and with higher interest rates and costs of doing business.

I wouldn't count those things as fundamentals. Availablity of credit, yes - you need that, but 'EXTREME' credit?

They'll all be back again sometime.

 

[StuartW]

Are you kidding me?

As a mortgage broker, you haven't noticed ...

• the number of financiers who have pulled out of the market
• the end of no doc loans
• the tightening of lending criteria
• the higher price that AAA banks have to raise funds from overseas

Cheers,

I agree with David's comments.

Of course the mortgage market has changed. However, normal borrowers that are borrowing sensibly haven't had any problems. People that have weaker financial situations are having problems and so they should. That's not a huge issue for property investment and in fact create opportunities. I have done just as well out of property investment in 2008 as I have in other years.

 

[Y33]

Lizzie,

You can still do all those things now whilst investing. Investing is part of the journey of life but it appears that some let investing run their life. I set targets and when I reach certain targets I reward myself and family with different things. The idea of missing out on things now to get to certain financial goals I believe makes you a slave to your goals and investing. I might not have arrived at financial freedom as quick as some others but I have definitely enjoyed it more than most.

 

[Qlds007]

Despite an overall slower property market projected for the coming year, RP Data’s 2009 Property Pulse Report has highlighted the suburbs that will offer value for money and potential for strong capital growth.

“The markets that are most likely to record good capital growth over the next 12 months are those that hold that ‘driver’ appeal,” Tim Lawless, RP Data’s national research director, said.

Mr Lawless believes a variety of factors will act as market drivers in these areas, such as falling interest rates, increasing affordability, rising rental rates, improving investment yields and a shortage of housing.

“First home buyers and investors will be the first to jump on these suburbs,” he said.

According to RP Data, property hot spots are those with strategic affordability – those that represent good value for money based largely on "location, necessities and social options".

Examples of those suburbs highlighted are as follows:

Sydney: Toongabbie, West Ryde, Ultimo, Crows Nest, Canada Bay

Melbourne: Deer Park, Flemington, Kensington, Prahran, Collingwood

Brisbane: Coopers Plains, Fortitude Valley, Camp Hill, Zillmere, Redcliffe

Regional: Upper Burnie (TAS), Woolgoolga (NSW), Wonthelia (WA), Halifax (QLD), Mount Barker (SA)

 

[atti]

its always a good time to BUY NOW if u can AFFORD IT! lol

 

[evand]

I see this line so much and it makes me ask "why don't people who can always afford to buy, buy a house a week?"

It doesn't make sense cause its not always a good time to buy.

its always a good time to BUY NOW if u can AFFORD IT! lol

 

[atti]

well they do. as long as its positive cashflow, i dont see why not buy a house a week if can afford it. houses has always gone up in long term so its a blue chip investment, if you over analyse theres always reason not to buy.

 

[mikey investor]

I think Michael is a sales professional too.

I would rather take advice from Henry Kaye anyday!!!

 

[Peter Parker]

It's interesting how the messages change with the times, though always with the imperative for them to sell and for you to buy.

* This 2006 book came packaged with a various freebies, including one on "How to Profit from the Great Property Boom Ahead – In this downloadable audio interview Michael Yardney explains why the next property boom will be the biggest boom yet and he gives good reasons why it may be our last big property boom." http://www.secretsexposed.com.au/letter/property-millionaires

(ie one of those 'never to be missed' calls for urgency)

* In 2008 we are told that "rules are different now and not every location will experience strong property price growth in the short term." http://www.propertyupdate.com.au/articles/295/1/Decide-what-you-want-to-achieve/Page1.html

(ie if you don't go with us you might lose out as you need our skill to not make a mistake)

Has there ever been a time when it's been recommended that we hold off buying until prices improve relative to incomes*, or rental yields increase so holding costs are lower?

(*) John Fitzgerald recommends such a point in his 7-steps book based on affordability, and this appears to have stood the test of time.

 

[sash]

Good point Spiderman.

I personally think a lot of these people write stuff supporting their own agendas.

People like Jan Somers, Margaret Lomas, Robert Kiyosaki have written stuff which have stood the test of time.

It is also interesting to note that some people started with low end cashflow properties and then moved to more CG based properties. The move away from these fundamentals have caused them to unwind part of their portfolios....

It's interesting how the messages change with the times, though always with the imperative for them to sell and for you to buy.

* This 2006 book came packaged with a various freebies, including one on "How to Profit from the Great Property Boom Ahead – In this downloadable audio interview Michael Yardney explains why the next property boom will be the biggest boom yet and he gives good reasons why it may be our last big property boom." http://www.secretsexposed.com.au/letter/property-millionaires

(ie one of those 'never to be missed' calls for urgency)

* In 2008 we are told that "rules are different now and not every location will experience strong property price growth in the short term." http://www.propertyupdate.com.au/articles/295/1/Decide-what-you-want-to-achieve/Page1.html

(ie if you don't go with us you might lose out as you need our skill to not make a mistake)

Has there ever been a time when it's been recommended that we hold off buying until prices improve relative to incomes, or rental yields increase so holding costs are lower?*

(*) John Fitzgerald recommends such a point in his 7-steps book based on affordability, and this appears to have stood the test of time.

 

[Peter Parker]

Books are better

Good point Spiderman.

I personally think a lot of these people write stuff supporting their own agendas.

And why wouldn't they if they've got a business to sustain?

Generally I find that when industry people write a book it is often better than various commentary, forecasts or suggestions issued since, or the sort of properties their business pushes.

For instance Fitzgerald's book is better than the brand new properties he flogs (which have poor land value components in fringe poorly serviced areas).

Also a book is kinder to complexity and nuance than a short media grab and you can be sure its the authors words more than a newspaper one-liner. The effort in reading the book will certainly be repaid and it may well be worth more than seminars or one-stop-shops etc.

Though even here authors can trip up by missing salient points or practicalities.

Eg Lomas not admitting that buying for the depreciation benefits is only good for the first few properties and past then it runs out. Until your job income is high your tax paid drops to a low rate and then zero, so depreciation benefits are wasted. So her depreciation-based approach is not sustainable unless the rate of acquisition drops or you go for higher yields which boost income. But once you've got to that level hopefully you'll have worked this out for yourself.

Also the <$200k cheapies in Ryder's 'ugly duckling' suburbs around 30km from the CBD are mostly too old to depreciate, so you must accept their 6-7% gross yield on purchase for now and hope for increased future rental demand or improvements made to reach Lomas' ideal 'cashflow neutral after tax' position.

Luckily the loss here should be temporary, quite small and bearable, unless interest rates leap, tenant demand falls or you lose your job (another problem with buying properties that rely heavily on depreciation to make them add up).

Unlike Lomas, I do think it's acceptable to accept a small initial negative after tax cashflow since the probability of success is still overwhelmingly on your side, and especially if you bought well, a 2% annual capital growth is not unrealistic. However I do think it's unfortunate that some writers on the Lomas approach (particuarly when writing in property magazines) were trumpeting 5% yields (back when interest rates were 9%+) in articles about chasing cashflow positive properties, when 5% is clearly insufficient.

 

[csc]

Im sorry but a mortgage broker isnt the type of person i would take notice of regarding whats hot and whats not..............the whole market in all locations either has cooled or definitely will cool way more yet..

far better value next year in 2010 or beyond without a doubt...

the sceptics can go and buy today....smart investors will be waiting to maximize at a later date...

 

[sash]

Spiderman,

Nothing wrong with sustaining a business...it is up to the individual to do their due diligence.

As for depreciation....care needs to be taken here. Depreciation is great whilst you have an income as it is an artificial deduction. I just explain this to one of my friends who was ready to jump on houses with depreciation potential and he got a shock. For example , say you bought 3 houses with a short fall of $15k before depreciation....the depreciation in the first year is 20K...so with depreciation. This is great whulst you have a job....but if your income drops you are out of pocket by $300pw!!

At the moment i am seeing ugly ducking with 7-8.5% returns in the outer suburbs in major cities. On my calculation you are CF+ on properties at 7.5% in Melbourne and Sydney....and at 8% in Brisbane due to higher mgmt and rates. The depreciation is the icing on the cake.

From a personal situation....I just achieved about $1000 per week cash-flow. The depreciation on the older properties is another $15-17K. They are all older properties....so I am able to make it work. Besides the value is in the land.

And why wouldn't they if they've got a business to sustain?

Eg Lomas not admitting that buying for the depreciation benefits is only good for the first few properties and past then it runs out. Until your job income is high your tax paid drops to a low rate and then zero, so depreciation benefits are wasted. So her depreciation-based approach is not sustainable unless the rate of acquisition drops or you go for higher yields which boost income. But once you've got to that level hopefully you'll have worked this out for yourself.

Also the cheap <$200k houses in Ryder's 'ugly duckling' suburbs around 30km from the CBD are mostly too old to depreciate, so you must put up with their 6-7% gross yield on purchase and so must rely in increased rental demand or improvements made to reach Lomas' ideal 'cashflow neutral after tax' position.