The great Oz property crash of 2005.

3% isnt a great rental return, now if 'you' (anyone) bought at a price where your actually getting between 7%+ then id agree


Not understanding where the 3% you refer to is coming from?

Personally in todays market I get at least a 6% gross yield on all my properties from day one, including one I bought in Sydney's inner west a couple of weeks back.

So using the original example of a $400K property. A 6% gross yield is about $460pw. If the market was to crash by say 50% and the purchase price was to drop to $200K. At this price given current rental supply issues, causing very low vacancy rates, and with the market generally being the determinant for rent (i.e. nothing to do with the purchase price) then the gross yield at $460pw is now a very handy 12%. Positively geared assuming IR's don't sky rocket, with the likely CG to be some serious gravy on top.
 
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.

That's the whole point, if he just didn't talk about housing because he has no idea that would be fine but articles themed such as this one " Impending Housing Bust etc" is just wrong and dangerous.

He was miles off the mark in 2005 and is still singing the same song.

It is one thing to stay away from recommending property investing but to declare an upcoming bust is just irresponsible. I have spoken to several people who respected his opinion and it has cost them 100's of thousands of dollars.

Anyone buying around the time of that article in Melbourne could sell now and if they bought moderately well would reap in the vicinity of 80% profit.

For example I bought a 2 bed apartment in Bayside melb in 2007 for 280k, just got offered from the tenant $565k.

My deposit etc was borrowed against another property but there is opportunity costs etc so lets assume I put in cash deposit, would have been $70k (20% plus costs) plus $50k holding costs ($120k). Total investment $120k.

$565k less $280k = $285k less $15k in and $15k out = $255k pre tax profit

So pre tax profit of $255k which would be 212.5% return on investment (Plus negative gearing benefits along the way). Not bad for a bubble busting period?

I could quote 100's of other examples also.

No one here is saying property always goes up and there is no risk in leveraging, there certainly is. What I am saying is Scott has proven to be hopeless inaccurate in predicting a housing crash and should give a disclaimer whenever he talks about property:

"History has shown I have no idea about property and anything i say should be completely discarded"

Cheers

BT
 
I checked and you have been a member here for just a year. Why do you feel qualified to say this:
No one here is saying property always goes up and there is no risk in leveraging, there certainly is.

Somersoft's phylosophy is exactly that: Property does indeed always go up and leverage is a one way street.
 
Just as an example;

If I invested $40,000 in the stock market and the market dropped by 50% I'd lose $20,000.

If I invested $40,000 and borrowed $360,000 to invest in a $400,000 property and the real estate market dropped by 50% I'd lose $200,000.

Most people who invest in stocks understand that CFDs are one of the riskiest ways you can trade because the leverage increases your gains and your losses. I think sometimes people forget how leveraging in the property market increases our risk and our exposure to losses. For whatever reason people consider it as a much safer investment. I suppose it's because property has performed so well in Australia in recent history.

I still think understanding the impact of a property crash is very important. I'm confused as to why people here disagree with what I'm saying? I think what I'm saying is very reasonable.



You'd lose 40K and the bank and/or mortgage insurer would lose 160K - IF you sold.
 
Now now- everyone play nicely. Its perfectly OK for people to have differences of opinion but the tone doesnt need to be menacing or aggressive or insulting.
 
I checked and you have been a member here for just a year. Why do you feel qualified to say this:


Somersoft's phylosophy is exactly that: Property does indeed always go up and leverage is a one way street.

i feel qualified because i have read the thread and no one is saying those things at all.

u often go on about this only positive stuff and there is far more only negative posters compared to only positive posters on this site.

most investors on here talk of the risks involved and mistakes made etc.

i could name ten posters who only talk post about the market going down. i couldn't name one who only talks about it going up and that leveraging is bullet proof.
 
come on - you and I dont know whether they have money- and its not the point. None of us enjoys ownership of the forum. Its open to anyone who registers and while you dont have to agree with them, you dont have to insult them either. You can disagree respectfully :)
 
With my example I was trying to highlight how all things held constant leveraged property investment is riskier than non-leveraged investment in the share market.

....highlight something we don't know. leverage always increases risk, which is why we manage said risk with dividends, tenants, options, research and buying below intrinsic value.

Had Scott advised people to get into the property market he is essentially advising young people to take on a huge amount of debt and invest in the most risky way (leveraging!). Property in most cases is a very expensive investment, whereas you can start out in the share market with only a few thousand dollars without having to borrow.

i got started in my first house with a "keystart" loan for a sh_tbox 2 bedder - no deposit, funded by the government and now i live in a beachside suburb and i only turned 30 last year - where exactly was it "hard" for me to get started? all i had to do was stump up the goolies and put a bit of risk on the table.

That is the reason I don't think his argument about people staying out of property is that bad or "risky" as some others have said. Someone here said that their friend was wiped out in the stock market, but at least they only lost their own money! That was the only point I was trying to make!

ever heard of a brokers' margin? 1:2. ever heard of a derivative? 1:5 up to 1:20. ever heard of forex margin? 1:400. define the "stock market" they got wiped out of, please.

You're correct that losses aren't crystallized until you sell. However if the value of property halves how many people would continue to pay a $400,000 mortgage on a $200,000 house?

about 80% of the population, because they don't care.

Many owner occupiers and some investors would choose to default even if they have the capacity to pay. Many would simply go bankrupt out of choice. I think they're called "forsaken" defaults. This is how the domino effect happened when the property market crashed in America. I know that the Australian bankruptcy laws are quite different to the US so this may not happen to the same extent as it did there.

you cannot be f____ing serious? surely....? are you aware of what bankruptcy does to someone in Australia? ever had to apply for ANY credit? TV, CC, House, Car, Myer One card, Woolies Everyday rewards card....all have to declare if you've been bankrupt. Christ, next they'll have it on your Departure Card. You can't even own a car over "x" value. My mother was bankrupted by her estranged ex-husband and trust me it's not just a case of "walking away". you bleat about being taken seriously and then post crap like this?

all "those developers" that "went bust" just lot a lot of money and collateral assets - but ANYTHING - ANYTHING - to avoid bankruptcy - and these are people who play the financial game. Christ even Bondy has a hard time borrowing and his bankruptcy was 20 years ago.


You're correct that a downturn produces buying opportunities, but the credit markets would probably freeze up and banks would stop lending out money. We also saw that in the US.

Uh huh. what about those who aren't relying on finance? what about those who have stupid low LVRs like a lot of folk do, and maintain, after the last bull run? not everything and everyone is credit-centric.

I was speaking to some of the international students at uni and they were telling me how many of their friends and relatives have left Australia and begun university in the United States and Canada this year. Japan and China won't unpeg their currencies from the US because they own so many US treasuries and rely on exports to the US. So as the US currency falls because of their money printing and inflation so will the Asian currencies. I think this is going to make the AUD appreciate more and more and it's really going to hurt us! When they finally do unpeg their currencies and stop lending money to the US we will probably see a major depression.

are you honestly going to sit there, behind the safety of your keyboard, and tell me that the Yuan is officially pegged to the US dollar?

I don't mind people disagreeing with my arguments. I just hate it when people don't write WHY they disagree with me and say something like "Oh, you're too young and inexperienced so you don't know what you're talking about!"

Keep posting inexperienced crap like the above and it's about all you are going to get, i'm afraid.

see blue, coz i'm seeing red.
 
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,
Where did this come from?

Scott Pape 2005: There will be an imminent bust! Back out now!
Real Estate Market 2005-2007: good capital growth
Somers Posters 2011: Scott Pape was wrong
Belle 2011: I'm going to play devil's advocate and argue with these people

And now you're implying that people here suggested Scott Pape should have recommended highly leveraged speculative property?

No one did that. Posters took pleasure in calling out this charlatan. You argued with everyone.

There are people here suggesting people are being a bit mean towards you but you pretty much bring it onto yourself.
 
I checked and you have been a member here for just a year. Why do you feel qualified to say this:

Bigtone said:
No one here is saying property always goes up and there is no risk in leveraging, there certainly is.

I'll speak for many others here:

1. Because no one has said that in this thread
2. It's generally not the view of most posters here
3. I can't vouch for Bigtone but I have similar views. After 10+ years of successful investing I believe I qualify.

Somersoft's phylosophy is exactly that: Property does indeed always go up and leverage is a one way street.
Sounds like you have a grunge. Maybe you are a FA and are sick of potentially clients knocking you back because they chose property ahead of stocks?
 
3. I can't vouch for Bigtone but I have similar views. After 10+ years of successful investing I believe I qualify.

not saying this is you but...

it always amazes me how people put down success to their own market expertise and superior knowledge blah blah without ever acknowledging the general market trend itself,

does a person that makes money buying in a market that proceeds to go up for 20 years in a straight line have anymore investment expertise then someone who is just starting out?

people always discount randomness it seems
 
not saying this is you but...

it always amazes me how people put down success to their own market expertise and superior knowledge blah blah without ever acknowledging the general market trend itself,

does a person that makes money buying in a market that proceeds to go up for 20 years in a straight line have anymore investment expertise then someone who is just starting out?

people always discount randomness it seems

Good point. I agree on that.
 
exactly my point

I'm still not seeing a valid point here, care to expand? Simply highlighting the word 'Gross' only serves to ignore other aspects such as depreciation and negative gearing etc which to a certain extent negate any additional costs necessary to determine the 'Net'.

The point I alluded to was that in the hypothetical situation of a 50% crash the rental returns on new purchases would be providing significant buffer by way of increased yields, either gross, net or any other way you care to slice it. Particularly in anticipation of a likely return to CG.

You still havn't explained where your 3% yield from the previous post came from? As it would require pretty exceptional circumstances for a 6% gross yielding property to only net yield 3%, and seeing as the point was referring to a post crash scenario in which the gross yield was now 12% this makes it even more unlikely.

Always keen to hear constructive debate particularly on this theory, but from the tone of this reply as well as others in this thread it would appear you seem to be trying to take a position of authority on such matters without backing up your argument. Really keen to hear why you don't feel the rental returns in such a scenario are a valid consideration?
 
Top