What time is it on the investment clock?

Easy,

The thing that seems the most "out of whack" on the clock is at 2 o'clock share prices are about to fall ? If we are at 1 o'clock and the cylcle is accurate, then the already battered share market is in for a real shocker.

I thought the general trend was for money to go towards real estate when share prices are down ?

I am actually convinced at the moment that no analyst / economist has any idea what is going to happen in the short term with either shares or property. In the past 12-18 months I would estimate that 9 out of 10 of their predictions have been wrong !

I do like the clock though - just think it is a bit mixed up this cycle

PIppety;)
 
Pippety,

I do like the clock though - just think it is a bit mixed up this cycle
I'm not sure. I suspect that one of the things that is happening in this cycle, and something which has not happened before, is that investing in residential real estate has been opened up to the masses.

The gurus have had their say, and turned thousands into investors (myself included). The makerteers have added their bit. There's been coverage on TV on how to add value quickly to your house by doing an auction makeover- or even, occasionally, on successful investors or wrappers.

Now the RBA* have warned that much of the property boom has had more to do with investors than with real value.

What's going to happen now?

Don't ask me. I didn't invest in Sydney 2 years ago because I thought things had peaked then. Doh!

But there does seem to be a general expectation that the good times are past. The media are predicting things will crash. And the more they do it, the more people will believe them.




* Note use of capitalised TLA!
 
I firmly believe in the investment clock and have traded (successfully ) through 4 property cycles - almost 30 years.
I think what is confusing people this time round is that there is not one property market.
The property market has matured and fragmented over the years. This mean some segments of the property market are already over their peak (such as the inner city apatment market in melbourne Sydney and Brisbane) while others are just reaching their peak.
I've spent 4 or so pages discussing this very issue in the latest edition of our FREE property investment newsletter. If you didn't get your issue or wish to subscribe click on this link

http://www.metropole.com.au/html/Subscribe.htm[/URL]

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Sometimes the points on the clock can overlap, they don't necessarily have clear points of stop/start. So for instance we could in this cycle be seeing an overlap of 12, 1 and 2 where the rising property prices are ending, rates are on the way up, and share prices are declining or have declined. I don't know much about 3, 4 and 5. Falling commodity prices? Falling overseas reserves? Tighter money? Are there any indications of that happening yet?
 
Another way is to have a property only clock to monitor what point in the property cycle we are at. Have a look at http://www.hpc.co.nz/market_commentary.php or the attachment for different clocks.

/forums/photopost/data/506/32property_clock.jpg

[ EDIT: moved image to photo gallery and replaced with image link - Sim' ]
 
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dionysus888,

I see you found my property clock at www.hpc.co.nz .

This clock specifically indicates the "time" of the Auckland property market in New Zealand (in the typical property cycle) .

Whilst the "time" on the property clock in Auckland differs, from say Sydneys "time", the same principals of the Auckland property market should apply to the Sydney property market and vice versa. These principals are simple truths like "the law of supply and demand" or "what goes up must come down" etc.

The "time" is driven by certain "drivers" of the property market and include market influencing factors like an event that causes a shortage of accomodation resulting in (not only) more rental cashflow (from higher rents) but a higher property value as well.

I know I am just a humble kiwi but here are my thoughts for you...

From where I sit (across the ditch in Auckland) I have been vaguely observing the Sydney property market for several years (I lived there in the late '80's) and I am truly amazed at how your market seems to have defied all logic (ie have you not just had a 5 year boom?) and values have continued to rise far in excess of what appears sustainable in the short to medium term.
From what I can see you have already experienced the "decoupling" of property values from property rents.
We too experienced the same phenomenum in Auckland in 1996 when most property investors were focusing on capital growth alone. We then experienced (in this order) increasing vacancy rates, decreasing rents, increased interest rates and interestingly enough our property values went into decline in 1997 and they only turned around last year on the back of (wait for it...) decreasing vacancy rates and increasing rents!

I am open to being better educated on why things are so different over there but in my opinion the Sydney property market fundamentals seem to be all wrong... I see that negative gearing seems to be the norm over there due to the very low yields available.
I know my bias is to NZ (I'm a kiwi) but we are buying positive cashflow properties in Auckland right now!
Our property cycle is in a different phase than yours as we have only just entered our boom phase recently (after 5 long years of experiencing a slump!)

A classic example of positive cashflow is the deal a friend of mine bought just last week. About 3 months ago he asked me to help him buy his first IP. I outlined a strategy for him and he embraced it entirely. He was diligent in his homework and his research of values, areas, rents etc. And I helped him make several offers on properties he didn't buy before he achieved this fantastic buy...
He has just purchased a purpose built building (circa 1946) of 3 flats in tidy condition in a good area (Mt Eden - 2 km from the CBD) for $525,000 with rents of $900 / week! This deal easily pays his interest cost @ 7% p.a. on 100% borrowings plus all outgoings and has a positive cashflow of over $100/week.
He also commissioned a Registered Valuation which revealed a value of $575,000.

Not bad for a first IP purchase! $100/week cashflow and $50,000 in equity!

Now, before you jump on the next flight to Auckland, don't get me wrong... not every deal here is that good, but he has applied the same principals (and legwork) that seasoned investors apply DO THE NUMBERS and MAKE IT PAY ON DAY ONE or DONT BUY IT!
Savvy property investors in NZ don't buy for capital growth because they see that as the cream and positive cashflow as the milk to keep your IP's alive. Another way of putting it is this, CASHFLOW IS KING. In my opinion capital growth should not be your primary reason for investing because if it is then you will only taste the bitter pill of reality, sooner or later, when you experience negative capital growth! And if you think that will not happen then think again... Night always follows day and time WILL tell.

Over the years I have learned that the property cycle can be a powerful influencer of either increasing OR decreasing your wealth. As a PI you need to be able to tell the "time" in the cycle so you can position yourself to financially weather any storms (and maximise any opportunities) the "market" may bring.
 
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Wasn't it Mark Twain who said that history never repeats, but it rhymes.

I don't trust investment clocks, they're only right for one '12 hour' cycle....the next cycle is subtlely different.

Anyone who follows the clock precisely is likely to end up like the French, always prepared for the last war :)

I also recommend that you take a look at the SBS series "Commanding Heights' on Sundays at 8:30pm. It's about the changes in global & national economies and economic thinking over the past century. Details are also at www.pbs.org.

Cheers,

Aceyducey
 
Originally posted by Kieran


A classic example of positive cashflow is the deal a friend of mine bought just last week. About 3 months ago he asked me to help him buy his first IP. I outlined a strategy for him and he embraced it entirely. He was diligent in his homework and his research of values, areas, rents etc. And I helped him make several offers on properties he didn't buy before he achieved this fantastic buy...
He has just purchased a purpose built building (circa 1946) of 3 flats in tidy condition in a good area (Mt Eden - 2 km from the CBD) for $520,000 with rents of $900 / week! This deal easily pays his interest cost @ 7% p.a. on 100% borrowings plus all outgoings and has a positive cashflow of over $100/week.
He also commissioned a Registered Valuation which revealed a value of $575,000.

Not bad for a first IP purchase! $100/week cashflow and $55,000 in equity!
Wow, Keiran, what a fantastic deal.

Can you give us more details?
How did the vendor let it go that cheaply?
Was it student accomodation? Run down?

cheers, Tony
 
Hi Tony, Yes it is a fantastic deal.

First my apology for an error in my original post (Purchase price was $525k not $520k). The property is 3 purpose built flats (on 3 vertical levels) comprising 1 x 2 brm @ $250/wk plus 2 x 3 brm @ $325/wk each. Surplus cashflow before tax rebate is over $4,000 p.a. and after a tax rebate it is over $8,500 p.a.

To answer your question "How did the vendor let it go that cheaply?". We don't actually know! All we know is the agent who was taking the property to auction actually marketed it without a price and I suspect a lot of people thought it would sell for more than it did!
The agent indicated to my friend that there had not been too many people interested and it would probably get "somewhere in the $500's" so a week before the scheduled auction we made a cash unconditional offer of $500,000 with a 10% deposit cheque attached. A day later the agent indicated that the mid $500's would buy it before the auction and so we increased our offer to the maximum of $520,000 and then the vendor asked for more money (he wanted $540,000) so we really stretched and offered $525,000 but that was our final offer and we advised the agent that the offer would be withdrawn prior to the auction if the vendor did not accept it.
But we had previously done our research and knew that the vendor paid $500,000 for it in 1999. We had already made an educated guess that the vendor probably at least wanted his money back and if he sold for $525,000 he would (after agents fees). Much to our delight the vendor accepted.

I have learned in the past that no real estate agent can find a keen vendor like a written offer can!

No , its not student accomodation or run down.
You do have to walk up some stairs (one storey) to access one flat and down (one storey) to access another. The third flat is at ground level. The flats all have a nice feel about them with good spaces and layout.
Two flats have limited outdoor living, there are no covered carparks (but plenty of offst parking).
It has been painted both inside and outside a couple of years ago
One flat (2 brm) does need a cosmetic tidy (basic reno @ $2,000).
It is a little unusual as it has little street appeal and is next door to an upmarket kitchen retailer. The council records show the site has had some fill in the past but nothing of concern to them.
It is on a bus route on a main road (but set back from the road by @ 8 metres) and 100m to nearby shops and cafes.
Just a few traffic lights from the CBD.

Bear in mind that the valuation of $575,000 was an "as is" valuation so we are aware that efforts to rectify any of the shortcomings mentioned above will only increase the rental stream and ultimately the value of the property.

The main factor in this great deal appears to have been a keen vendor who was prepared to forgo the cost of an auction to secure a sale (which would net what he paid for it 3 years earlier) combined with my friend being an unemotional purchaser with a well defined plan and a strategy to achieve that plan. (i.e. He was buying on the numbers and using a pre-determined negotiation strategy we devised for this one property purchase).

Excellent deals like these are still hard to find but funnily enough... they are usually found by those who make the most offers...
 
Having traded successfully through 4 property cycles I feel that the sooner an investor trades through a complete cycle, the better an investor they will be.
How many stock maket investors , who thought they understood it all, will trade or invest differently after the recent internet stock crash? (I learned in the miing stocks crash in the late 60's)
Because of the importance of cycles in investing I have written a special FREE 8 page report on the economic cyle and will tell readers how to get it in my next newsletter which comes out later this week.
I know most forum readers are subscribers. If you don't get yours by the weekend, or if you are not on our subscriber list, click on

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I think this is a hard question to answer.

What I am seeing is properties sub $400K getting snapped up, sold within 1-2 weeks, but the price must be realistic, this is the Perth market. However, the expensive properties over $600K are just sitting on the market.

I think generally speaking property market has still got a long way to go, market sentiment is still quite negative and this is the missing ingredient that is required to make things really happen.

Cheers MTR
 
matto
I follow cycles, from my experience it has happend in Perth, Melb and inner city Syd.

What about u, any other markets that I have missed:)
 
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