Why would you buy in a stagnant or falling market?

Dazzling said:
Oh, and Nathan, I'm with you mate. These posters that have 1, 2 or 3 posts, drop a negative clanger and then bugger off never to be heard again.....I'm getting jack of it as well. This is the last time I'll respond to the ilk of these. I reckon it's HG having a laugh.....and he sucks us in every time. he won't be getting this little black duck again.
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When I start to read one of the negative posts, after rolling my eyes, they go straight up to the number of posts. If they are "fresh" blood I still read the post, but I immediately assume it is one of our "regulars" with a new name.

I don't think they are sucking anybody in. I think most of us realise the game they are playing. I think the reason why we respond (for me anyway) is so that genuine newbies need to know that these negative posters are what they are, and not to be frightened by the negative posts.
 
Many thanks to the people who added their opinions so far - it's cleared up a few things on where I'm heading in the current market. Dazzling & Bill's posts were quite good; many others factors to consider rather than your typical 4x2 house, so thanks for sharing. The only thing I feel though is yes property returns on average 7-10% p.a. however there are obviously years whereby the property has no growth or negative growth followed by maybe double-digit growth, so you still need to weather the storm in the down period.
 
Dazz is right, don't underestimate the nagging spouse factor.

It's the main reason most of my mates have bought property. If you've got a nagging spouse, have just started a family and are looking for some security in your accomodation (maybe you've been moved on from your last two places cause the landlord wanted to sell/renovate?) then buying a place can make sense for some even if the market is looking dreary.

With property it's more than just the numbers.

Don't forget, there are plenty of reasons why it shouldn't crash as well. It's also very possible that there could just be a long period of stagnation.
 
Hi Snowman

I guess the question could be asked - why would you buy in a rising / peaking market - at the absolute peak there is only one way to go in a cycle.

But who can pick the peak - who can pick the bottom - when it hits the bottom there is only one way it can go.

But you cant enjoy the ride if you are not on the merry go round.
 
grossreal said:
hi WinstonWolfe
I also think credit is going to get alot harder.rates may change and I think down.
but credit is a different thing.
and I think that we are in for a credit crunch.
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Tend to agree with you GR.
No matter what the RBA does, I think credit is going to tighten significantly. And that can only hurt property prices.
More and more, Aussies will be dependent on foreign $s to keep pumping property prices, as our household savings rate sucks, and more of us are sticking our money in the share market.

I haven't researched it but I can't imagine foreign money will get cheaper anytime soon. Maybe the Chinese or Japanese might start investing in Australian mortgages, but who'd trust a credit rating agency these days.

I think many Aussies and property investors are about to learn a lesson in what factor primarily dictates property prices - the cost and availability of credit to the masses.


It is going to be interesting to hear Rudd say sometime in the next 2 years, Well, we've done everything we can to keep petrol prices down.
We've done everything we can to keep interest rates down
We've done everything we can to keep food prices down
We've done evertthing we can to increase housing supply and its affordability.....
and now we realize how little control of these things central govts have.


GR, as for the end of no doc and lo doc loans, I said something similar a year ago, and was insulted by one of the forum's esteemed mortgage brokers for my trouble. Considering small business breathes off lo docs, it is hard to see them ever being wiped out totally, but I agree credit contraction might be bigger than most pundits dream of.

Whether it is or not, will pay to be prepared for the worst and dream for the best.
 
hi WinstonWolfe
well if you said it some time ago about no docs and if you look at a couple of my posts that you should not use loc were you leave the money in the same loan.
and I said that I take my locs and use anoter bank to store the loc.
have a read and you will see that a few very interesting brokers said what the point as you are doing the same except its costing you about .5% for the luxury.
went to somersoft meeting in sydney last night with one of the guys that invests with me and we nearly fell off the couch when kumar said that ing is closing off their locs and resi has already.
I told my guys to do this about 6 months ago and david said lucky you told me to do that.

Maybe the Chinese or Japanese might start investing in Australian mortgages, but who'd trust a credit rating agency these days.

they will but networth lending.
also have a read about networth lending comming out of asia and europe
it a very different type of lending and is here already I mentioned it about 12 months ago that a few banks were looking at it well they are here as well.
they only do the high end stuff or did
they are doing the same as your rams and resi just a bit different.
rams and resi took to a lender or bank a bundle loans and gets a cheaper rate.
well they do the same
except you don't take alot of loans.
you take alot of your loans and they lend on your bundle for you and lend to you.
so you are your own mini rams or resi.
it will become more common as the credit crunch becomes more noticable.
for me the no doc is a thing of the past and will turn into a a projected full doc loan product.
so start as a no doc for say 12 months and then with financials become a full doc product with a part of the mortgage that says in 12 months we will review the loan requirements.
the people supplying no doc and lo doc the risk cost on their balance sheets is just to high for this market and as the book has to be balance from risk against return the nodoc and lodoc is alot of weight on one side of the ship.
and to level it they had a bit higher rates but they have lost that extra weight on that side of the side .
so it leaning a bit at this stage so they have to straighten it up and you can drop them.
or you can change them(the americans changed them into aaa rated stock that leveled it up quick and we know what happend to them) and networth lending does level them. as it now take a nodoc loan and makes it a full doc.
as the loan is to a full doc client so they don't have no doc or full doc on.
they have full doc clients and the loans are to different entities within that structure of the client.
it is an asian type of lending and I think that the majors will start to do it
the asian banks already do.
I have been waiting for one to arrive.
and they have
and they have been here for 12 months already.
not for everyone as they are very selective and have a few hoops to go thru but interesting all the same.
 
WW, I'm surprised that you say this: More and more, Aussies will be dependent on foreign $s to keep pumping property prices.

As we know, prices are set at the margin and it was the Yen carry trade plus 1% borrowings from the US Res plus the proceeds of the sale of billions of dollars worth of gold "leased" from central banks which provided the funds needed to boost worldwide property "at the margin". Domestic savings never had anything to do with it.

As for an esteemed member critising you, there seem to be a number who no longer post. I really would love to know why.
 
I agree with some of the advice given so far. Particularly Grossreal's original post.

You'd buy in a falling market because its better to buy low, then sell high, as opposed to buying high and selling low.

Ideally you'd buy at the absolute bottom of a market, but given the size and nature of real estate, its difficult to pick this. So, you either buy now and assume that the bottom is near and just wait it out, or you can wait until the bottom has passed by looking at signs such as houses being on the market for less time, an overall increase in the median price of clearance rates rising. These factors may be a sign that the market is starting to rise.
 
Sunfish said:
WW, I'm surprised that you say this: More and more, Aussies will be dependent on foreign $s to keep pumping property prices.

As we know, prices are set at the margin and it was the Yen carry trade plus 1% borrowings from the US Res plus the proceeds of the sale of billions of dollars worth of gold "leased" from central banks which provided the funds needed to boost worldwide property "at the margin". Domestic savings never had anything to do with it.

As for an esteemed member critising you, there seem to be a number who no longer post. I really would love to know why.
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SF, I make that comment on the basis of my superficial interpretation of readings of RBA analyses......see graph 10 - Bank Funding Liabilities -> dwindling retail deposits and growing foreign wholesale funds.

Re MBs no longer posting, I think the rout of their industry is on. One was telling me the other day the industry median income had been around 75k for the last few years, but that is expected to fall around 25k this year. No doubt a lot of them will move onto better paying work, driving trucks in the mines perhaps.
 
Very good call from last August WW. It might have been labelled doom & gloom then but turned out to be reality.

What happens in finance and property is usually a hell of a lot different than what people want to happen, or believe will happen.

WinstonWolfe said:
GR, as for the end of no doc and lo doc loans, I said something similar a year ago, and was insulted by one of the forum's esteemed mortgage brokers for my trouble. Considering small business breathes off lo docs, it is hard to see them ever being wiped out totally, but I agree credit contraction might be bigger than most pundits dream of.
Click to expand...
 
DavidMc said:
Don't forget, there are plenty of reasons why it shouldn't crash as well. It's also very possible that there could just be a long period of stagnation.
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I agree with this. Where I invest, we tend to get long periods of stagnation followed by strong growth periods. My thought it that my target market is within 10% or so of the bottom, and will rise again after a period of stagnation (that will likely last a number of years). Given that my strategy is to pay P&I on all my loans, over time my loans reduce (inflation helps too), so my interest liability declines over time regardless of market movement. Decent rental yields mean that I'm not paying much out of my own pocket, and that within only a few years the properties become cashflow positive anyway. Then it's just a matter of waiting until the next price surge happens, and I ride the wave to retirement. Personally I hope the stagnation lasts 5-8 years (like the 90's in Canberra), so that when the next boom starts I have plenty of properties.

Ultimately, I am happy to invest in IP during the last parts of market decline and stagnation. Already the number of good, easy deals in increasing, and I'll be looking to pick up another IP in the next few months, and again next year.
 
Let me ask you a question?

If you came accross a deal where the numbers stack up, would it really matter?

For example if you came accross a property which with a simple reno would achieve positive cashflow (with a fixed loan), or a deal with subdivision/sell or reno/sell where your profit margin would handle a price drop or a lower sale price to move it quickly, and still leave you with a substantial profit. Would you still not do the deal?

Just my two cents worth :)

Wishing you every success,

Ana Stankovic
[email protected]
www.WinningFormulasForSuccess.com

With the right tools anyone can create successful results.
 
hi ana
not sure who the question is to.
but here's a question to you and anyone else.
if you got a property
and the purchase price to you was 50% below market.
and you could get a 80% loan and use the difference of cash into a loc or term deposit.
you have to pay the other 50%( to get to the market value) but you don't pay that until 5 years from now at no interest vendor finance at no interest.
and you got the full use of the loc or term deposit to hold and pay any cost over the rent( if there is any) but the money can't used for any other project but this one.
and at 5 years you take away all cost out of any profit and then split 50/50 with the vendor.

would you take it in this market.

so you have no money down
the cash in the loc or term
covers any cost over runs and after all cost you split 50/50 with the vendor.
who would take it and who wouldn't.
I am interested in people risk profile with this one.
its inner cbd sydney and no its not up for sale.
 
grossreal said:
would you take it in this market.

so you have no money down
the cash in the loc or term
covers any cost over runs and after all cost you split 50/50 with the vendor.
who would take it and who wouldn't.
I am interested in people risk profile with this one.
its inner cbd sydney and no its not up for sale.
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Hi GR

I like a number of things about this hypothetical deal:
- Vendor seems to be motivated?
- No money down, effectively over the term.
- Vendor finance sounds good

Things I don't like:
- 50/50 profit share means it's not really vendor finance then is it? More like a joint development that takes away half the upside.
- How much control do I have during the term? I like control... :) sounds like the vendor has half though.

If it was straight vendor finance with me in control and everything else stacks up I could do it. My history with developments in partnerships means I probably wouldn't otherwise...

Ana, to answer your question if the deal had a good land component and I saw some potential for CG upside as well due to local factors I would still do it... those types of deals don't come around often and won't hang around for long!
 
Ana said:
If you came accross a deal where the numbers stack up, would it really matter?

For example if you came accross a property which with a simple reno would achieve positive cashflow (with a fixed loan), or a deal with subdivision/sell or reno/sell where your profit margin would handle a price drop or a lower sale price to move it quickly, and still leave you with a substantial profit. Would you still not do the deal?
Click to expand...

I would take it if I could make it CF+.

I just don't know how to find a deal like that in Sydney. It may take some vendor financing to make it CF+.

Cheers,
 
hi HiEquity
this is not a development site.
this is end finished product
tennants in before purchase.
and yes I have the control of the spare cash and yes I have all the risk.
just woundering people views in that would they take it.
and they are not that uncommon in this market and with the resi ing bankwest and seize issues around at the moment the more jittery developers will get and for me this type of deal will come up more often
I will have to swallow this one and sit back for a little will in resi as this is enough at this stage for me in resi
 
grossreal said:
and they are not that uncommon in this market and with the resi ing bankwest and seize issues around at the moment the more jittery developers will get
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Did you mean ING or IMB? I listened to the audio from Victor's presentation, and I'm sure he mentions IMB.

Victor's presentation was awesome...wish I was in Sydney to go to his workshop.
 
hi younginvestors
will check and maybe victor can correct me.
I have no problem being corrected.
but the names don't really matter at this stage.
you can change the names to anyone thats not a real bank
and I say real bank as that puts macq in there as well.
as I have said before I don't see a slide in property
but I do see a slide in credit and with that will come all the other things that come with that slide.
we are looking at a very interest time ahead.
and you do need to invest with a very good head on your shoulders and the numbers men out there(and women) need to invest very wisely.
for me its not a time to be buying and reno with a hope to get lending and or be hoping to get a lender to refinance.
why
because thats done on a very secure investment rates and easy money both of which are looking very difficult to find.
so to do that you need to be working on 70% westpac,cba,anz,nab rates not seiza resi etc rates
and for me 70% purchase reno and back to 70% refinace rates is very sharp pencil work as you have 30% in the deal and thats alot of money( or tying up that amount of equity)( and by the way I see this crunch causing alot more equity lending to over come it but thats a very different point).
so yes you can make money doing it( but if your good you can do the same in any market) but you have to have done it before and know your margins.
I am just digesting what I have in the pipeline now and will sit back and watch for a little while and invest a bit in a different market.
this is not to say this is doomdays or anything like that.
markets adjust and this market is adjusting
not from a price point of view as alot of areas that I have had a look at have already adjusted and for me can't adjust anymore ( and in those areas is were you find the fallout of the what I call the walking dead the ones that have no hope of getting there money back).
but from lenders point of view
alot of lenders are bringing there balance sheets back to what they should be
and for alot of people that is going to hurt.
I see credit card limit reducing and loc or offsets being reduced or rates charged on them.
so do not be supprised to see a 6 or 7% interest rate on offset accounts for the use of the money.
but that just my .002 worth
and ha just as per the first couple of lines I could be wrong and do accept being corrected
 
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