Belle what do they teach you at uni, just because the market drops 50% doesnt mean you loose half your money, you can buy put options. Like a type of insurance. You can hedge and make money in a falling market or rising market. You can still get divends even if the price falls. If the price rose 300% before or after the 50% fall you have lost nothing. Why would you buy a house for $400,000 then sell it for $200,00 houses are usually a long term investment and you would loose more than $200,00 because of the asociated selling cost. You would only loose money if you sold. You would probably still get about the same rent evev if prices did fall. I think falling markets can be good they create buying opportunities, that where you make your money, you buy, you dont crystilize loses by selling.
The great Oz property crash of 2005.
- Thread starter InnerWestie
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Belle what do they teach you at uni, just because the market drops 50% doesnt mean you loose half your money, you can buy put options. Like a type of insurance. You can hedge and make money in a falling market or rising market. You can still get divends even if the price falls. If the price rose 300% before or after the 50% fall you have lost nothing. Why would you buy a house for $400,000 then sell it for $200,00 houses are usually a long term investment and you would loose more than $200,00 because of the asociated selling cost. You would only loose money if you sold. You would probably still get about the same rent evev if prices did fall. I think falling markets can be good they create buying opportunities, that where you make your money, you buy, you dont crystilize loses by selling.
i'm only an opportunist trader. For example, historically when sep 11, asian tsunami, GFC etc etc happened - gold prices always went up - so at this time - any right minded person say last week would put a trade in on gold and made his money.
I've had my hand in trading and been trading since i was in high school when there was no internet and had to call my broker to get prices and read the papers. I still remember the 1st telstra share offer back in the day which i used the proceeds from the sale to buy my 1st car.
Slap yourself on the wrist for selling an asset to buy a liability.
telstra shares r a liability!
Slap yourself on the wrist for selling an asset to buy a liability.
i was a teenager - there wasn't ipods, iphones or ipads back in 96.
yup if you bought it from 1996 and kept it till today it's more or less the same price.
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. 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. 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!
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? 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'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.
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.
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!"
Slap yourself on the wrist for selling an asset to buy a liability.
Lighten up. We are always exchanging assets which you can't eat or make you comfortable, for those things which do keep us alive, sheltered and comfortable. That's life.
Do you understand the difference between full recourse and non-recourse states in the US? Do you understand the implications of bankruptcy? Do you really think anyone who has a full recourse mortgage would deliberately default considering what happens to them, especially in Australia? No credit. All other assets sold. Possible wage garnishing.
When did Japan start pegging their currency to the USD? I suggest reading about the Plaza Accord.
I did say our laws were different so it wouldn't happen to the same extent here! But many investors and companies have trusts and other legal structures to protect themselves set up don't they? So wouldn't many of them walk away? Law isn't one of my strengths so I might be wrong!
You're right, I shouldn't have lumped China and Japan in together!
Lighten up. We are always exchanging assets which you can't eat or make you comfortable, for those things which do keep us alive, sheltered and comfortable. That's life.
Sunfish;
have a look at my bloody emoticon in the post. It was a joke, dude.
It happens.
Not quite. You still have $40k of cash in it as equity, so you have lost $160k.
If you put $40k of cash into the stock market, then yes. Hopefully you have a good dividend with it.
If your property halves in value, but you can easily rent it out and can cover the mortgage repayments, you won't need to sell it, and won't lose the $160k.
On paper you have lost the value of the asset to a degree, and for a time, but the cashflow behind it (rent and tax deductions) should still be there.
Shares are rpobably the same to a degree, but if you have used a margin loan to buy them, the bank might still call you up.
In the outside world, people don't have a responsibility to educate you. They'll ignore you and let you continue with your misconceptions. Or take advantage of it, to your detriment. It's not a youth thing, BTW. Plenty of young investors here with loads of experience and knowledge.
the amount of leverage is irrelevant to the riskiness of the asset. if the asset is of a higher risk (ie, shares) than not leveraging does not make it less of a risk.
property is a lesser risk - it is still a risk and i admit that i was burnt myself in property, but that was because i bought at the peak of a market, leveraged to the hilt, didn't observe cashflow as part of the equation (whole pile of poor investing factors) - but if invested well, property is a very minimal risk due to all the underlying factors of need for shelter, long timeframes to meet demand, population growth, low interest rates, difficult liquidity means they don't get "dumped" like shares.
already covered - propertycan be, by far, the least risky investment.
true
even during the great depression, property came nowhere near close to halving to australia. however, i have seen shares halve many times over my lifetime. gosh, i even remember when bhp was $10/share!
why? if it costs just as much to rent, then why would you go bankrupt, stuff up your credit history for the foreseeable future?
i think you fear is of leveraging - rather than property. fear usually comes about by ignorance about the subject fears. i would be interested to hear whether the views you express are regurgitated from your uni lecturer, or through practical experience.
true, leveraging can increase your risk if things go horribly wrong (shares, property, motor vehicles, credit cards) - but it also increases you ability to make money, if the risks are mitigated wisely by ensuring buying well, cashflow is solid, insurances etc. a seasoned investor will mitigate the risks so that they become irrelevant.
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.
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Leverage is a risk amplifier, but then you get the risk / return relationship, so is leveraging bad?
If you’re risk averse or don’t know what you’re doing in the investing game then its best to go to Ubank
Great points by Lizzie, some of the reason I like RE investing is the need for shelter an illiquidity so you know people are going to hold on to their houses for as long as they can.
If you’re risk averse or don’t know what you’re doing in the investing game then its best to go to Ubank
Great points by Lizzie, some of the reason I like RE investing is the need for shelter an illiquidity so you know people are going to hold on to their houses for as long as they can.
Mate, that hasn't stopped plenty of people losing money in property investing. I've known a few.
You can lose money walking down a street. There are no fool proof, fail safe, guaranteed investments. Life is life, make of it what you can
hey - i was one of them. nearly sunk us due to my very very poor decisions.
basically i was gambling, not investing, and ignored many of the fundamentals. greed and panic about missing out got in the way. however, it was a priceless lesson.
that doesn't discount that leveraging for property "investing", when the risk factors are identified and mitigated, is a great way grow wealth.
i would've posted further in reply to belle, but had to do the school run
