A property author with a well balanced, unbiased view of the current markets.
I'm impressed!
RC
When can too much 'good' debt be bad ?
- Thread starter K_Raheja
- Start date
A property author with a well balanced, unbiased view of the current markets.
I'm impressed!
RC
I was always taught that if anyone ever said to me "the property market...." that I must ignore absolutely everything they said after that, because they obviously haven't got a clue what they are talking about.
No intelligent investor would talk of such a massive bucket, as no investor can take advantage of it.....everything is a big mish-mash of combined pap.
When you referred to the property market Paul Do, were you refering to ;
1. Inner east Melbourne CBD 3x2 house in St Kilda ??
2. South Fremantle container yards ??
3. Qld islands ??
4. Hobart office towers ??
5. Cattle stations south of Katherine NT ??
6. South Dandenong factories ??
7. Bellevue Hill and Point Piper mansions ??
8. Beach cottages down in Victor Harbour ??
9. Pub on the corner outside the 'Gabba ??
10. Block of miner flats out in the Isa ??
11. Caravan Parks in Bendigo ??
12. A cafe in Bondi ??
13. A 2x1 hi-rise apartment in East Perth ??
All of those are just a tiny sample of "the property market", but all are completely different, in different locations, affected by different laws and obey different supply and demand forces, and are all in different stages of the proeprty cycle....if there is such a thing.
If anyone tried to stand up and tell me that they all went up 5% last year and will all likely go up say 6 or 7% next year, but the income side of things has peaked......well of course, I would know that they are talking out of their hat.
I'm not impressed at all....
I'm sorry to disappoint you.
Maybe a simplified example will clarify it for you.
Assume there are 5 sub-markets. There are currently valued at say 75%, 80%, 85%, 90%, 95% of their long term values. Assume they are roughly the same size so you can take a straight average to get the market valuation - 85% of its long term value.
Say 10 years later, the market has risen and the same valuations are 140%, 145%, 150%, 155%, 160% of their long term values, and overall the market is 150% of its long term value.
An intelligent investor will buy when the market is 85% of its long term value and avoid it when it's 150% of its long term value. They use a top down approach.
A novice will try to pick the sub-market/suburb/property that is 140% of its long term value. A motivated novice that has maybe gone to a seminar might try to pick the sub-market that is 140% of its long term value and try to add value to it.
Last edited:
Paul,
You are writing stuff to me as if I am in some comfy lounge chair listening to one of your lectures or seminars.
Mate.....I'm out here in the real world running for my life, eating every little dog I can find and running as fast as my puny little legs will carry me away from the big snarly dogs that roam around here chomping everything that moves.
I cannot assume there are 5 sub-markets...
You are writing stuff to me as if I am in some comfy lounge chair listening to one of your lectures or seminars.
Mate.....I'm out here in the real world running for my life, eating every little dog I can find and running as fast as my puny little legs will carry me away from the big snarly dogs that roam around here chomping everything that moves.
I cannot assume there are 5 sub-markets...
What part of a simplified example can't you accept?
Just focus on the principle here and that is:
Whether there are 5 or 1000 sub-markets, it's more sensible to invest in the market that is undervalued than overvalued.
Sure you can make money in the undervalued sub-markets of an overvalued market but that:
- Requires finding a needle or a couple of needles in a haystack
- Most novices are attracted to overvalued markets - so there are heaps of novices trying to find a couple of undervalued opportunities, and by definition, novice and picking undervalued sub-markets are oxymorons
Hi, this quite interesting thread has gone on a bit of a tangent.
ToDo, you've taken this into comparison of assets.
The issue of how much good debt becomes bad seems to me not the amount of debt but how much the borrower can repay.
20 year olds or 30 year olds should borrow up to their eyebrows. And I can see a few raised eyebrows, maybe!
The reason is simple : they have a LONG time to repay.
I'd leverage up to 120% if I were working. Did too, long ago.
The nature of the job [I was a school teacher] dictates what one should do.
School teachers, nurses, policemen, postmen, navy : these just BEG for high leverage. One postman back in 2003 was settling his 7th IP when I was looking for funding for a commercial property.
Wish someone had told me then to leverage up to my eyeballs.
KY
ToDo, you've taken this into comparison of assets.
The issue of how much good debt becomes bad seems to me not the amount of debt but how much the borrower can repay.
20 year olds or 30 year olds should borrow up to their eyebrows. And I can see a few raised eyebrows, maybe!
The reason is simple : they have a LONG time to repay.
I'd leverage up to 120% if I were working. Did too, long ago.
The nature of the job [I was a school teacher] dictates what one should do.
School teachers, nurses, policemen, postmen, navy : these just BEG for high leverage. One postman back in 2003 was settling his 7th IP when I was looking for funding for a commercial property.
Wish someone had told me then to leverage up to my eyeballs.
KY
Yes, but the long term is made up of lots of short terms. You've got to survive them first.
RC
I personally wouldn't be able to sleep comfortably with just a two year buffer - but that is just me. Some people would say that I am conservative.
This is a really good point. I work out my shortfall before my tax return. The other thing to allow for is that if you start using your buffer and it is in the form of an LOC or cash in offsets, your interest bill will increase.
However, you could also argue that a buffer would give you some time to offload and reduce debt as necessary.
