Which city will you buy in -2007?

[alexlee]

Play the averages, lowb. You're young enough for the AVERAGE to make you rich. Go out there and buy at a price range you're comfortable with. Pay below value if you can, of course, but don't balk just because you are paying full value. And why choose between states? Buy them all! Buy Sydney, buy Melbourne, buy Brisbane, buy Adelaide..... think big. Buy properties everywhere!

Part of visualisation is about being able to 'see' what you will think in the future. i.e. imagine that this is 20 years in the future and you're thinking about the past. Are you going to think 'I should have been more selective about what I bought' or 'I should have bought more back then'? Ask any 50 year old this question.
Alex

 

[alexlee]

The poll old me:

1 - more investors from Mel, Sydney and Brisbane on this forum. probably more gurus, more seminars, more books, so on.

Melbourne, Sydney and Brisbane covers more than half the population of the country. Assuming ssoft people represent the population, wouldn't it be perfectly natural (forget gurus or books or seminars) for there to be more ssofters from the Eastern States?
Alex

 

[alexlee]

its a bit of a analysis paralysis sort of a thing, but it rather helps a lot (this poll). im very grateful, and *will* in the very near future be purchasing (if I find the right one)...

As others have said, you've started lots of polls, but I just don't see how they will help in your decision making (except make you even more paralysed by tons of info). What is the 'right' property? In 20 years, what would have been the 'right' property? In practice, in 20 years EVERY SINGLE PROPERTY would have been the 'right' property! Some more right than others, perhaps, but are you really going to regret ANY property you buy and hold for 20 years?

I see lots of polls. What I don't see are posts saying 'I just looking at a unit in so and so suburb. X bedroom, Y bath room, Z years old. What do people think?' THAT's what you should be doing. Just pick an area and go buy.

For those just starting, over-analysis is NOT the way to go. I'm not saying go out there blindly, but if you don't buy anything you'll never make any money. Make your mistakes. Learn from them. Your first IP is hopefully the first of many, and you can finetune later.

My thought for the day:
IN 20 YEARS, EVERY PROPERTY IS 'THE RIGHT ONE'!
Alex

 

[TheAnalyst]

Alexlee,

"IN 20 YEARS, EVERY PROPERTY IS 'THE RIGHT ONE'!" - I agree, probably 10 years precisly.

Lowb,

Regarding the poll, I believe if you ask the questions such as these:

1. rent or growth

2. fundamentals of buying in that state or city? (comparasion)

3. why are you buying?

4. Timeframe

These questions will give a good reason of buying. For example, now why people say Perth is not their first choice ---- because it becomes more expensive --- BUT they ignore the fundamentals -- Best economy in the country - best business investment (BRW) - good interest rates. You can take RBA to increse another (ASSUMING worst case) 2 hikes to 6.75% into your calculation (remember, Estern States are in recession, RBA can not just want to control the WA economy and property boom), proably WA still the best option.


I also said in another post, LAWN mowers get $400-500 a day and you can not find one in WA. What do you think the affordablity? Traditionally they earn $40-50k a year, now they earn $80-90k a year, most of them cash business.

The affordablity issue is only for small amount of people who never could afford one. For example: for a young couple, earn $40k each (minimum government wage), they earn $80k a year without kids. For them to buy a $40K-50K house, what is the problem?

 

[kph]

Nice poem Rix,

I'm going to 'borrow' it if you don't mind.

 

[Rixter]

Nice poem Rix,

I'm going to 'borrow' it if you don't mind.

Sure no probs......what are you borrowing it for?

 

[geoffw]

Sure no probs......what are you borrowing it for?

I guess the purpose will dictate the deductibility of the interest.

And there has been som interest shown so far

 

[Rixter]

I guess the purpose will dictate the deductibility of the interest.

And there has been som interest shown so far

hehehe.....next I'll get asked for a receipt

 

[alexlee]

Analyst, I don't dispute that WA has the best economy AT THE MOMENT. For these conditions to continue, the mining boom must continue. Gardeners making a lot of money just means there's a shortgage on. In the same way, software engineers made lots of money right out of uni in the dot com boom years. You're observing effect and assuming that the cause will continue. Current conditions are not guaranteed to continue, especially as it requires a 'paradigm shift' (i.e. China somehow industrialising without stumbling).

Will the RBA use interest rates to rein in WA even though it might cause further pain in the Eastern states? Welcome to the big leagues. Used to be that the RBA was said to be Eastern-centric: i.e. ignoring the needs of WA. Now WA has joined the big leagues and is the engine of growth in the economy. It could be said that the RBA now thinks WA is such an important part of the economy that it WILL rein in WA even though it will hurt NSW, VIC and QLD. WA won't be able to just happily grow out of control in the west under the radar anymore.

Also, assuming markets track to mean over the long term, we're way over the long term mean for Perth right now. I go on the basis that long term property goes up 7-10%. That means I buy when the growth rate is below that.

That's just my analysis, and obviously the Analyst has a different view. What I don't see from the Analyst though is why WA will keep booming. Yes, conditions are great. As they always are in a boom. Now that property has come off the boil, is this the same as when Sydney came off the boil (and has been negative for 3 years)?

This is part of what I'm talking about. Some people know their home market well and have a lot of confidence in it. Which is fine. Doesn't mean this will continue into the future. It also doesn't mean they reject the other states because they know them: just that they are heavily biased towards one state.

All you see in this poll is the bias people have. Doesn't mean the bias is based on sound reasoning. I want to buy my PPOR in Sydney because I'm going to live there. That's buying for personal reasons. For IPs I want to buy in Melbourne and Adelaide over Brisbane, for example, for land tax reasons as well as fundamentals. In other people's cases, Qld land tax may not be an issue.
Alex

 

[alexlee]

The affordablity issue is only for small amount of people who never could afford one. For example: for a young couple, earn $40k each (minimum government wage), they earn $80k a year without kids. For them to buy a $40K-50K house, what is the problem?

I'm assuming you're talking about $400k - $500k. Say they borrow 90% ($360k) for a $400k property. That's around $32k in repayments (P&I). $80k a year is, what, $60k a year after tax? You're talking about a couple using HALF their after tax to pay the mortgage. Within a few years, it's likely that they will have kids. One parent might stay home to care for the kids. Now they can't afford the mortgage. Welcome to many parts of outer Sydney.
Alex

 

[TheAnalyst]

Alexlee,

Do not agree with you on the case. You can ask anyone if they earn $80k a year, whether they can afford $400-500k house?

For gardener to earn $80k, ----- it does mean the demand is high but also idicates all the industries are high because lawn mowers are typically low skill area and every one spend $2000 can start their business. You missed the point mate.

 

[alexlee]

You have your beliefs, I have mine. I don't think the situation in Perth can be sustained. Like all booms I think it will pull back. I get your viewpoint, I just don't agree with it.

As for buying a $400k property on $80k salary..... if you have a couple each on $40k, what are the chances that one will quit work after a child is born? Or an economic pullback causing one of them to lose their job? This is exactly what is happening in Sydney. Outer West houses that went for $400k'ish (Rouse Hill, etc) a few years ago, and now that the people are a little older and having kids (and NSW's economy isn't as good as it was), interest rates and petrol have come up, and people are struggling. Property prices are flat or falling, so they can't refinance (assuming they had the income to do so). We hear a lot about professionals getting pay rises and bonuses but most ordinary people aren't.

Our difference is that you assume the current good times will continue. I don't. You assume that because people can afford things now, their circumstances and the economic situation will not change and therefore they can keep making payments far into the future. I don't. Buying a property for most people is a 25 year project, and it's crazy to assume that the great conditions Perth is having to continue long term. That's what people in Sydney thought in 2003 or so.
Alex

 

[alexlee]

"IN 20 YEARS, EVERY PROPERTY IS 'THE RIGHT ONE'!" - I agree, probably 10 years precisly.

Depends on which 10 years. If you think 1996 - 2006 can be extrapolated to estimate the long term, you're ignoring history. As an example, using median prices taken from the Abelson ahd Chung study Housing Prices in Australia 1970 to 2003:

Perth median 1989: $102,500
Perth median 1999: $147,500

Increase of 44% over 10 years, or 3.7% a year.

Sydney median 1989: $170,850
Sydney median 1999: $272,500

Increase of 59% over 10 years, or 4.8% a year.

If you'd held for 10 years to 1999, you might have thought property was a crap investment (remember mortgage rates peaked around 17% in 1990 and was still at around 10% in 1996). And had you extrapolated the 1989 to 1999 results as the long term trend, you would be right. Long term returns of 4-5% a year, when interest rates are double digits? What a horrible investment! Gearing would have hit you hard instead of helping you like it would during the noughties.

Had you held the property until now, of course, even with Sydney being flat for the last 3 years, you would be doing much better.

Now, having gone through average double digit growth for the last 5 years, if you use that as the long term average you'd pile into property, especially Perth. Is it any more logical to assume the current boom conditions will last forever, than assuming that the 1989 to 1999 conditions would last forever? Today, with the benefit of hindsight, we would laugh at anyone who sold in 1999, because we can see how pent up demand during the 90's, lower interest rates, tax breaks, a booming economy, etc all pointed to a boom just around the corner. I wonder what we will be thinking in another 5 years, with the benefit of hindsight then?
Alex

 

[TheAnalyst]

Alexlee

The time will tell what is going to happen in WA market over next many years, compared with east states.

Your words are simple -- things up and things will come down. But when, how much? A lot of rediculous commentators and gurus also say these - of course, things happen up and down --- it means nothing. People talk these many years and I was scared of that and sold few of my goldmines as well because "Perth can not rise forever while I did not check the fundamentals."

Just on the news, BHP just secured 9.5% price rise from China. We will see in 2007, 2008 and 2010.

On affordability, I know one country people earn $10k (family) and buy $200k house? in your theory, it will never be possible.---- It does happen and a lot.

 

[alexlee]

On affordability, I know one country people earn $10k (family) and buy $200k house? in your theory, it will never be possible.---- It does happen and a lot.

Care to share the details of this? In Japan, for example, resi interest rates are around 1-2% and yields often around 8-10%. I KNOW some countries have unique characteristics, but that doesn't mean you can say it'll happen in Australia. What country are you talking about? What are the circumstances that make such serviceability possible and why do you think it is possible for this to happen in Australia? Even in that country, what happens if one parent quits or loses their job and their income goes to $5k?

For example, Japan's fairly unique situation of 1-2% interest and high yields resulted from a 15 year crash in property prices and deflation. So to see those sorts of interest rates all economic hell would have to break loose in Australia first.

You're right, I don't know when it will fall and by how much. I just believe it will fall, because I believe that a property cycle is more likely, and makes more sense, than a market that just goes up. I want to build a portfolio for the long term. That means not necessarily finding the highest returns regardless of risk, but the best combination of risk and return. It means aiming for the long term average and not just looking for the hottest market. That might mean I miss out on the hottest markets at the end of the boom.

As for you selling some investments early: most investment gurus (the real ones) say that they often move in and out of a market too early, before the rest of the market realises the change. In hindsight, that's the BEST time to move in and out of a market. You may yet feel good about your 'early sells'. Say you sold the NASDAQ in the 4000s. You would have felt like an idiot when it cracked 5000. When it went back below 2000, of course......
Alex

 

[TheAnalyst]

Alexlee

Property market does not crash like shares as long as you can hold it and keep it. I had the share experience which on Friday selling at $1 a share and on following moday and the company went to voluntary admin.

I am halfway Steve 0-260 properties. It is a good book and will give you some hints on what you talking about.

 

[Monopoly]

Alexlee

Property market does not crash like shares as long as you can hold it and keep it.

TA,

please don't misunderstand me here, I am a property bull from wayyyyyyyys back, and if I had to nominate my preferred strategy for wealth creation it would definitely be property, however (having also said that.....)

Property market has as much volatility as the share market (depending on where and what you buy vs what you trade, and hold/sell of either etc etc) the only difference being that its volatility (property) isn't as "in your face" everyday as are the trading reports.

And as for "buy and hold" to get you back on track, this too can (and does) apply to both markets. Corrections happen for both markets, and unfortunately when you get hit (and I know, I've been hit by both) it may take a while to get yourself dusted off, but sooner or later, you can get up again as long as you are prepared to weather some of the elements that are trying to keep you down!!!

I think both yourself and Alexlee have made exemplary comments with regard to these issues, however have somehow taken slight detour?? .

 

[alexlee]

Alexlee

Property market does not crash like shares as long as you can hold it and keep it. I had the share experience which on Friday selling at $1 a share and on following moday and the company went to voluntary admin.

I am halfway Steve 0-260 properties. It is a good book and will give you some hints on what you talking about.

True. Shares may not crash as much as property (that is, it can't go to zero), but with the amount of gearing we put into IPs, it doesn't have to crash 100% for us to get into negative equity. A 20% fall in property would be armageddon for most people. WE may not have a problem, but you have to appeal to the average investor here. A 20% drop would cause most newbie investor to panic and sell. As would a 20% drop in the sharemarket. It's like saying losing my job means nothing to me, but would kill most ordinary people in 3 months.

I've read McKnight's book. That talks about +ve CF investing in regional areas. What does that have to do with whether a resource-driven property boom in WA can continue? I only buy in capital cities. McKnight learned a good technique and was very proactive and successful in implementing it (with a dose of good luck on the timing). More power to him.

I agree that if I bought Perth now and held for 20 years I'll make money. That's not my goal, though: what I'm asking is, is there anywhere that would make me MORE money than Perth, especially considering my strategy involves refinancing? I'm bearish on Perth in the medium term, and the medium term is where I grow my portfolio. I think Perth has a higher likelyhood of falling or going flat in the medium term than Brisbane and Melbourne. Therefore, to maximise the amount of assets I have growing in the long term, I'll be buying Brisbane and Melbourne (maybe Adelaide) to achieve what I think will be the best medium term growth I can get to refinance.

Long term, I assume 7% growth anyway regardless of the capital city.
Alex

 

[Monopoly]

Shares may not crash as much as property (that is, it can't go to zero)

Either market crashing to zero would be both catastrophic and highly unlikely!!!

 

[lowb]

Thank for all your help!

(my analysis paralysis came from unrealistic expectations perhaps: hoping that if one could buy well it would be possible for one to do stuff like 100 properties in 2 years)

To have had the advice you have all given is priceless! I'm ready for action, and want to buy in melbourne:



As a sydney-sider, I dont have the micro knowledge of suburbs (i.e. what parts of the suburbs are dodgy) but am looking at the following

a) frankston 2bed unit
close to station, close to beach

b) clayton south 2bed unit
close to monash uni

c) noble park 2bed unit
undergoing gentrification, cheap

What are your thoughts?