The great Oz property crash of 2005.

Belle,

You're obviously passionate about putting your new found knowledge to good use, but as a few have already stated on here the balance of your argument against leveraging is severely lacking.

Personally it is many years since I completed my own business and economics degree, and whilst I believe it is important to get an education to understand the bigger picture, there really is no substitute for real life experience.

Just out of curiosity, you wouldn't happen to be a student of Professor Steve Keen over at UWS would you? It really does worry me what they are actually teaching students these days.

If so just run a search on here for him or even google him to give yourself a little perspective. He's not exactly Nostradamus.
 
The amount of leverage you apply does not change the risk profile of the investment, it simply magnifies the outcome. What experienced investors consider is not so much the risk of the investment itself, but rather the risk TO THEM of making the investment.

What this means is that the experienced investor with a multi-million dollar portfolio with a couple of million in equity can assess the risk TO THEM of buying an inner city unit on a 100% lend differently to the 23 year old kid starting their first professional job.

As investors, we are also concerned with risk management. Think about an investment, and consider the things that can go wrong. How bad is it if they eventuate? How much will it cost to mitigate the risk?

There are two extremely powerful tools that help people go from having nothing to being wealthy. One is compound interest, the other is leverage. Used carefully, leverage is an amazing tool.

Belle - thanks for staying and participating even when the debate gets a bit rowdy. Bear in mind that university study is good at looking at things in isolation, but often not so good at factoring in the real world variables that we learn through actually doing. Keep at it - knowledge is power, but it needs to be exercised.

FWIW I started with nothing, and also went to uni. :)
 
The amount of leverage you apply does not change the risk profile of the investment, it simply magnifies the outcome. What experienced investors consider is not so much the risk of the investment itself, but rather the risk TO THEM of making the investment.

What this means is that the experienced investor with a multi-million dollar portfolio with a couple of million in equity can assess the risk TO THEM of buying an inner city unit on a 100% lend differently to the 23 year old kid starting their first professional job...

Great post VY - exactly what i was thinking. Would give you kudos but unfortunately it seems that you have written too many good posts before.:)
 
The amount of leverage you apply does not change the risk profile of the investment, it simply magnifies the outcome.

very true and well said.

a poor cashflow/capital gains performing leveraged property will amplify the poor performance and get you in trouble very quickly (that was my rollercoast speculative experience that nearly sunk us).

a well purchased cashflow/capital gains property will multiply your money very quickly (as i had also discovered, but forgot as greed and glamour took over, then was reminded of and are doing again).

as a simplified example - property costs $300,000 - deposit $30,000 - ignoring ongoing costs for this moment and only using the interest component to make it a very very simple layman example.

1. say the property was bought poorly and with speculation of fast capital gains. rents only for $240/wk. speculative period ends. rent and capital gains stagnates and goes nowhere for 5 years ... property will cost you around $130/wk or $33,800 after 5 years - even worse if you include costs of rates, management fees etc.

2. say the property was bought well with basic investing fundementals followed. rents for $380/wk. rent and capital gains rise by average 5%/yr (some years more, some years less) ... rent pays for interest payment and after 5 years is positively geared ... property has increased in value by $80,000.

so, using leveraging, in example 2. you have turned your $30,000 into $110,000 at no cost to yourself. almost quadrupled ... or ... example 1. you have lost the equivalent to your entire deposit plus some.

for someone who does not understand the fundamentals of wise property investing and selection would allow the possibility of 1. overriding their belief that 2. is also possible if you know what you are doing and mitigate the risks. but fear of 1. happening due to not understanding the fundamentals does not rule out that 2. is very possible.

experience is priceless.
 
Belle,

You're obviously passionate about putting your new found knowledge to good use, but as a few have already stated on here the balance of your argument against leveraging is severely lacking.

Personally it is many years since I completed my own business and economics degree, and whilst I believe it is important to get an education to understand the bigger picture, there really is no substitute for real life experience.

Just out of curiosity, you wouldn't happen to be a student of Professor Steve Keen over at UWS would you? It really does worry me what they are actually teaching students these days.

If so just run a search on here for him or even google him to give yourself a little perspective. He's not exactly Nostradamus.

Yeah degrees nowadays do not exactly teach you real life stuff.
Economist could go either way - sometimes if they feel it's great - it's all rosy other times it's gloom and doom.
 
At the end of the day communism was good in theory, but experience has told us otherwise. That said I think its a little harsh criticising a whole generation just for wanting to contribute to a discussion.

as part of said generation; i would say no, it's not too long-a-bow to draw at all....
 
having known many uni lecturers in my time, unfortunately they tend to have very little concept as to how what they teach relates to real life.

One of my property lecturers (middle aged) thinks that the property market is safe because of high immigration. He is a very successful property investor. He doesn't rule out a crash though. He says he *hopes* there won't be a crash. I think that is a good attitude to have. Even though he doesn't think a crash is coming, he at least thinks about the possibility and looks at the risks.

My other lecturer who is a little younger (in his late 20s/early 30s) was leaning more towards a crash and so he has invested overseas in resorts and things like that. Many experts disagree on whether there is a bubble in Australia or not.

I'm honestly not sure if there is a bubble. I can understand both sides of the argument. But I do think the way people are investing in property is quite risky in Australia and it fits the definition of a bubble quite well. But the government can manipulate the market if we start to see a drop.

I know that many of the investors here leverage and do it very successfully. I'm just not sure that it would be appropriate for Scott to recommend highly leveraged speculative property investment to the masses who read the Herald Sun, because I view it as something quite specialised and risky. I think it's quite sensible for him to recommend things such as index funds which don't involve leverage. That is pretty much all I was trying to say.
 
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Just out of curiosity, you wouldn't happen to be a student of Professor Steve Keen over at UWS would you? It really does worry me what they are actually teaching students these days.

If so just run a search on here for him or even google him to give yourself a little perspective. He's not exactly Nostradamus.

I don't go to UWS. I learn about financial and economic theory/math at uni but I try to read/watch the news and follow the markets, I visit this forum, read books and watch documentaries so my opinions come from a lot of different places. I definitely don't blindly believe everything my lecturers/tutors tell me! My lecturers and tutors are pretty up front about the fact much of what we learn at uni is just theory and not used in the real world. My finance tutor is always telling us that many of the older people in the financial industry don’t even have degrees, they just have experience.
 
I view it as something quite specialised and risky. I think it's quite sensible for him to recommend things such as index funds which don't involve leverage. That is pretty much all I was trying to say.

only risky if you are uneducated (and i don't mean uni degree). unfortuately the masses "are" uneducated, and have no desire to educate themselves - so live in fear and take the soft/easy option.

doesn't mean they won't make money/lose money - just that they minimise their losses to their own money, but miss out on large potential gains via leveraging - purely because they are uneducated in how money/investing works.

education minimises risk in both shares and property.

as pointed out by berlina - both options are risky if you don't know what you are doing and leverage only increases that risk if you are uneducated.

if you don't know what you are doing (as per the masses) then they should stick with putting their money in their super funds.

and - i acknowledge - that belle's original post on this thread did say that investing was risky for the uneducated. sometimes we forget that 95% of investors fall in this bracket when we deal with those on ss who are in the top 5% of application of knowledge and street smarts
 
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Do as Mr Average does and you will remain Mr Average. I'm only out of uni for a few years but already I don't even apply any of what I learned - shows you what a waste of time it all really was. Spend 5 years in university to end up in a rat race job paying 50k and being unhappy....
 
Belle, please explain, when you refer to a property market 'crash', what do you mean exactly? if you're saying property prices will drop significantly, what percentage are you talking and over what period?
 
One of my property lecturers (middle aged) thinks that the property market is safe because of high immigration. He is a very successful property investor. He doesn't rule out a crash though. He says he *hopes* there won't be a crash. I think that is a good attitude to have. Even though he doesn't think a crash is coming, he at least thinks about the possibility and looks at the risk

My other lecturer who is a little younger (in his late 20s/early 30s) was leaning more towards a crash and so he has invested overseas in resorts and things like that. Many experts disagree on whether there is a bubble in Australia or not.


As many of the seasoned investors will testify to, your statement about the younger of your two lecturers above only serves to illustrate why so many on this forum are deeply sceptical with regards to the information the current uni generation are being taught.

Basically he's advocating investing in a niche market asset in an even more volatile market, maximising his exposure to risk without even the fallback of negative gearing amongst other things to mitigate his risk.

Further to this I'm sure most investors (particularly on this forum) are much more aligned to the views of the elder of your two lecturers. I'm sure the vast majority don't dismiss outright the possibility of a property crash, they just don't think it is all that likely.

Taking this one step further, I'm sure there are many astute investors out there who not only take this risk into consideration, but are prepared that in such an event there will be a fantastic opportunity to buy some real bargains, with a view that long term growth trends will be restored, whilst in the meantime taking advantage of fabulous rental returns.
 
1. you cant forecast govt getting involved directly in markets
2. many forecasting assumptions or on things that would happen if it was purely run free market
3. people are fooled by randomness (it goes up - im an astute investor, goes down - unlucky)
4. to totally discount economics and any negativity as doom and gloom is irresponsible. If you have no idea what m3 is and how it relates to asset prices you are a noob.
5. past performance is not indicative of future results. What has worked in the past has nothing to do with the present situation.
 
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