You put foward good arguments that are hard to argue with at times. This place has followers of both extremes. Iminent boom or decades long correction or all variations between. Who knows. Personally if something in the middle eventuates ill be happy. I think that would be the safest bet out of all possible outcomes.
will house prices continue to double every ten years?
- Thread starter keneth
- Start date
You put foward good arguments that are hard to argue with at times. This place has followers of both extremes. Iminent boom or decades long correction or all variations between. Who knows. Personally if something in the middle eventuates ill be happy. I think that would be the safest bet out of all possible outcomes.
An interesting debate, I can't help but feel that much of the opinion is derived from the rather narrow perspective of the recent Australian experience.
There are a couple of long term studies of established property prices, going back three hundred years or so, I suggest those interested search them out and read. The conclusions they draw were pretty much the established pardigms of property investment when I was involved.
There are other reasons for property fluctuations beyond the norms. Not that long ago, only the poor lived in central London (dirty, smelly, the big smoke etc) and anyone with money removed themselves to the new suburbs. Notting Hill, Putney etc were cheap as chips in the sixties and seventies. Notting Hill, until fairly recently had a reputation for being the shabby end of immigrant town. Now it is one of the more affluent areas. Likewise Streatham was posh in the Victorian era, and a craphole by the 1980s.
The process of decline/rediscovery by the pioneers/ regentrification is an ongoing process all over London.(bit like Paddo and Balmain) The strengthening market these last few dacades has in my estimation been largely driven by the increasing difficulty of commuting, and hence the necessity to live near your work. causing and inward migration. (This may well be happening in Sydney too). There is some evidence of this reversing very recently due to the increasing crime, and general unpleasentness of living in London at present. Certainly caused me to leave.
There are a couple of long term studies of established property prices, going back three hundred years or so, I suggest those interested search them out and read. The conclusions they draw were pretty much the established pardigms of property investment when I was involved.
There are other reasons for property fluctuations beyond the norms. Not that long ago, only the poor lived in central London (dirty, smelly, the big smoke etc) and anyone with money removed themselves to the new suburbs. Notting Hill, Putney etc were cheap as chips in the sixties and seventies. Notting Hill, until fairly recently had a reputation for being the shabby end of immigrant town. Now it is one of the more affluent areas. Likewise Streatham was posh in the Victorian era, and a craphole by the 1980s.
The process of decline/rediscovery by the pioneers/ regentrification is an ongoing process all over London.(bit like Paddo and Balmain) The strengthening market these last few dacades has in my estimation been largely driven by the increasing difficulty of commuting, and hence the necessity to live near your work. causing and inward migration. (This may well be happening in Sydney too). There is some evidence of this reversing very recently due to the increasing crime, and general unpleasentness of living in London at present. Certainly caused me to leave.
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I wouldnt have put it in such strong words.
Basically what is the purpose of owning residential investment properties:
to generate a future return, from increasing rents/capital growth or both
I think there is substantial evidence to support the theory that in the long term residential property makes an excellent investment vehicle for wealth creation.
The problem is this is the long term. To arrive at the long term, one must first get through both the short and medium terms, both of which do not automatically give the right to adequate returns.
In my opinion the long term involves multiple cycles, with eventual higher highs and higher lows.
So the essential question that i keep asking is under current conditions, with current rents, current prices, current place of australia in australia's economic cycle, would i be prepared to wear sub-adequate returns in both the short and medium term cycles (which could mean 10 years or more), to hold to the long term.
What are the risks?
What is the potential capital erosion in the medium term (and remember capital erosion in the current climate could just mean medium term price stagnation, given negative gearing). Another way to look at potential capital erosion, could i justify my investment, if property prices remained the same for 10 years, and rents just went up by inflation. What would be the erosion of my capital under such circumstances?
the answer to these questions depends very much on the individual. There is no right and wrong answer.
Issues to consider for the individual investor could include:
(a) how many properties do i own relative to my wages;
(b) whats my total debt/equity ratio;
(c) are my residential properties cash flow positive or negative at current market prices;
(d) what proportion of my total wealth is tied up in residential property;
(e) do i have adequate skills in alternative asset classes, such as shares, trading, investing in bonds, currency etc.
For my own situation:
(a)-(c) i own too many properties for this part of the cycle. On current market prices the portfolio is marginally cash flow negative/positive (havent checked recently) on leverage of around 50%.
(d) around 50% of gross value of investments is in residential property (again too high for this part of the cycle)
(e) yes i am very comfortable investing in other asset classes, mainly shares both in australia and internationally. Therefore i am not prepared to wear potential medium term losses on my capital to get to the long term.
Note though that this does not mean that i will offload ALL my properties. I have no intention of doing a Steven Keen, i need at least one property to live in, and given my net assets i would be very comfortable keeping another one as an investment property with a long term view.
If property continues to perform well in the medium term, i still have skin in the game, and i still have a 'roof' over my head.
If property doesnt perform well in the medium term, i have sufficient 'outside' wealth to take advantage of any potential situations that arrise.
Well yea you have a point. But to be honest the gloomy predictions are just as substantiated / justifiable as the other ones. I wouldn't get so hung up. Exit asap if you feel it's going for a big crash.
IV,
Your points make me question your logic behind being so bearish on property on the medium to long term (Think 10-12 yrs).
Just ask yourself these basic questions. In 10-12 yrs time
1) What would be the population of Australia
2) What would be the average wage and based on the disposable income, what level of mortgage repayment would be considered below mortgage stress.
3) What would it cost to build a house?
4) Lastly if rents were to increase at the rate of inflation what would be the gross rental return based on 80% loan taken today. Should renting be still attractive if property prices didn't move much in 10 years.
5) Remember property investing works best when using leverage, due to the debt erosion that happens due to inflation over time. 10-12yrs of inflation can erode a lot of debt.
So in your views if you are bearish on property on 10-12 yrs timeframe, I believe you must be pretty bearish on Australia's economy and GDP growth and population growth. Because if the GDP, population and the economy grows there is No reason why House prices won't grow in value. Then there is no point in investing in shares either, since the performance of sharemarket is closely tied to the corporate profits which heavily rely on economic growth.
The point is Property has statistics on it's side. It has a proven track record. You don't need to be a rocket scientist to invest in property. Use leverage, make sure your cashflows are managed, wait 10-15 years buy when you can and you will certainly create decent wealth for yourself. Investing in shares can be profitable as well No doubt. But it requires a certain level of skill, leveraging is not so easy as property even if you have your cashflow intact, if the price of your shares go down it doesn't matter whether or not you can continue to pay your interest bill, you will be margin called.
To control $1 million worth of property I can do that with only 20% of my own money. To control $1 million worth of shares I need atleast 30-40% of my own money to be even relatively safe. In 10yrs time what are the odds of survival for the average Joe for both asset classes? And who do you think will be better off in 10-12 yrs time. The one controlling $1million worth of assets in property with only 20% of his own money compared to the one who cashes in now and saves it in bank/goverment bonds/under pillow?
Cheers,
Oracle.
Nah oracle... I think for Intrinsic Value it's more an issue of what the properties do for him in the short to medium term.
Naturally Intrinsic Value is going to be more negative than some others. He is marginally cashflow negative / positive (he doesn't know). But his gearing is actually quite low, at 50%... Interest rates aren't even that high. How much would he be paying? 6.5%? That means his yield must be around 3.25% (which is hard to imagine unless he bought a lot recently). Not only that, based on his figures his properties are a big drain on capital / liquidity (as they require 50% gearing to break-even in such low interset rate environments!!!), yet they generate nothing in return during the short to medium term. If I were holding his portfolio, perhaps my view on things would be different also. If rates move up slightly he could get blown out of water even more.
So in summary, for IV, there is limited to no returns on the massive amounts of cash he puts in. In fact, he may even make a slight loss. If the economy stagnates in a 10-year time frame, he's sitting there with these things that generate him nothing and suck up his money. Naturally that shapes your views on things also.
Naturally Intrinsic Value is going to be more negative than some others. He is marginally cashflow negative / positive (he doesn't know). But his gearing is actually quite low, at 50%... Interest rates aren't even that high. How much would he be paying? 6.5%? That means his yield must be around 3.25% (which is hard to imagine unless he bought a lot recently). Not only that, based on his figures his properties are a big drain on capital / liquidity (as they require 50% gearing to break-even in such low interset rate environments!!!), yet they generate nothing in return during the short to medium term. If I were holding his portfolio, perhaps my view on things would be different also. If rates move up slightly he could get blown out of water even more.
So in summary, for IV, there is limited to no returns on the massive amounts of cash he puts in. In fact, he may even make a slight loss. If the economy stagnates in a 10-year time frame, he's sitting there with these things that generate him nothing and suck up his money. Naturally that shapes your views on things also.
What is a median property
Very interesting thread and some well balanced and reasoned replies from varying perspectives.
In a very generic sense the adage that property has doubled every seven to ten years, give or take, may actually be a conservative rule.
In true landscape terms, the oft quoted capital city "median" is at best an understatement (for houses), as lot sizes have gotten smaller. New estates are subdividing under 500 sq m and some around 350-400 sq m. It would be challenging to delineate actually what the factor to apply for this error is.
Also aside from the traditional quarter acre circa 1050 sq m block that are being subdivided in some areas to accomodate smaller multi dwellings, where do town houses fit in. I doubt they existed 50 years ago. I guess the equivalent are the attached or semi detached cottages of our inner suburbs.
So this begs the question....."what is the actual median property they report?"
If one looks forward purely from here, then there may not necessarily be a doubling (in some cities) in the next decade. Melbourne in particular has had a stellar run and Sydney and various regionals in Vic and NSW have equally impressed. I don't follow WA or SA so others may comment there. Brissy seems to have missed the latest Melbourne and Sydney heat. I'm not sure that given the current national and global sentiment that it will play catch up just yet, however those active in that market may correct me.
The point is, that in a series of cycles the old doubling formula may well apply per decade (7-10 year period) however it requires the application of a moving average of sorts to smoothe the "median data" . In addition to this some suburbs/areas outperform others of a comparable character or perceived status/quality. The points I make here are in terms of capital city overall medians.
My take at present, and I've posted elsewhere also is that we are entering a period of possibly tracking inflation. We will ostensibly go sideways for a while. Very general view and caveat of markets within markets applies. I smell 1991 in the air. There may be some softening of 5-10 % and then an undecisive market will unfold for the next five years at least IMO.
Overall the old rule applies, however how much is due to doubling by pure demand and how much from attrition of lot sizes and denser living leading to value add, has not been reported.
Whoever is good with such data may be able to source and report back. It would make for some interesting debate.
** Edit **
Also in addition to land shrinkage, nor does the purpoted "median property value" of existing dwellings allow for the renovation/extension and gentrification that has become more prevalent over the last two decades.
Very interesting thread and some well balanced and reasoned replies from varying perspectives.
In a very generic sense the adage that property has doubled every seven to ten years, give or take, may actually be a conservative rule.
In true landscape terms, the oft quoted capital city "median" is at best an understatement (for houses), as lot sizes have gotten smaller. New estates are subdividing under 500 sq m and some around 350-400 sq m. It would be challenging to delineate actually what the factor to apply for this error is.
Also aside from the traditional quarter acre circa 1050 sq m block that are being subdivided in some areas to accomodate smaller multi dwellings, where do town houses fit in. I doubt they existed 50 years ago. I guess the equivalent are the attached or semi detached cottages of our inner suburbs.
So this begs the question....."what is the actual median property they report?"
If one looks forward purely from here, then there may not necessarily be a doubling (in some cities) in the next decade. Melbourne in particular has had a stellar run and Sydney and various regionals in Vic and NSW have equally impressed. I don't follow WA or SA so others may comment there. Brissy seems to have missed the latest Melbourne and Sydney heat. I'm not sure that given the current national and global sentiment that it will play catch up just yet, however those active in that market may correct me.
The point is, that in a series of cycles the old doubling formula may well apply per decade (7-10 year period) however it requires the application of a moving average of sorts to smoothe the "median data" . In addition to this some suburbs/areas outperform others of a comparable character or perceived status/quality. The points I make here are in terms of capital city overall medians.
My take at present, and I've posted elsewhere also is that we are entering a period of possibly tracking inflation. We will ostensibly go sideways for a while. Very general view and caveat of markets within markets applies. I smell 1991 in the air. There may be some softening of 5-10 % and then an undecisive market will unfold for the next five years at least IMO.
Overall the old rule applies, however how much is due to doubling by pure demand and how much from attrition of lot sizes and denser living leading to value add, has not been reported.
Whoever is good with such data may be able to source and report back. It would make for some interesting debate.
** Edit **
Also in addition to land shrinkage, nor does the purpoted "median property value" of existing dwellings allow for the renovation/extension and gentrification that has become more prevalent over the last two decades.
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Another way to think about it is this.
Sure the blocks have become smaller, but do larger blocks necesarilly sell for a proportionately higher amount? ie if 200sqm sells for $400k, does 400sqm sell for $800k? Often it'd only sell for $550k, as subdividing the land ultimately involves knocking down the existing structure and rebuilding two new ones. Perhaps that's the first point to note, which would lessen the impact of your observation.
Another interesting point is, how has this country as a society adjusted to living in smaller spaces? As said this hinges on globalisation and comparing our block standards with similar experiences overseas. I challenge anyone to find a 500sqm block of land in a middle class suburb in Hong Kong. Course you won't find it. Are we going to adjust our standard of living to match the rest of the world and rid the big blocks. If so, I can tell you this place is so cheap like you wouldn't believe. Or maybe not?
Which is why I say this discussion, while interesting, is quite pointless. As we dwelve deeper more issues arise and both sides of the coin can be justified with really sensible arguments. Interesting nonetheless
Sure the blocks have become smaller, but do larger blocks necesarilly sell for a proportionately higher amount? ie if 200sqm sells for $400k, does 400sqm sell for $800k? Often it'd only sell for $550k, as subdividing the land ultimately involves knocking down the existing structure and rebuilding two new ones. Perhaps that's the first point to note, which would lessen the impact of your observation.
Another interesting point is, how has this country as a society adjusted to living in smaller spaces? As said this hinges on globalisation and comparing our block standards with similar experiences overseas. I challenge anyone to find a 500sqm block of land in a middle class suburb in Hong Kong. Course you won't find it. Are we going to adjust our standard of living to match the rest of the world and rid the big blocks. If so, I can tell you this place is so cheap like you wouldn't believe. Or maybe not?
Which is why I say this discussion, while interesting, is quite pointless. As we dwelve deeper more issues arise and both sides of the coin can be justified with really sensible arguments. Interesting nonetheless
oracle;691759]IV,
Long run for me would be much longer than 10years. In the long run i am positive.
These are all good points,which i think will help to SUPPORT housing prices. Imagine rolling a 10 sided dice. 1 very negative, 10 extremely positive result. Now add maybe 2 or 3 to that dice for your factors and then roll the dice.
One never knows the future, most of the time 'risks' come out of unknown factors. I very much believe in the gravitational pull of the mean.
I question this. You forgot the growth component. Its the growth component that justifies debt. As to inflation, yes this is long term positive, but not necessarily short term positive. In the short term it can be a significant negative as interest rates rise, but the revenue side of things can take time to adjust. Many people forget the late 1990's. People were saying property would be a bad investment because of low inflation. Low inflation=bad for property. Why were people thinking this? because of reference to the past where inflation was higher (and interest rates where higher). But what happened, they didnt factor in the increase in affordability through lower inflation = lower interest rates.
My main concern is potential volatility during the next 12 years based on current market prices. By year 12 you have a high probability of being correct but what about inbetween.
Am i bearish on Australia's economy:
I think there will be difficult periods ahead, when i have no idea, and the degree of difficulty i also have no idea. But consider Australia hasnt had a recession in 16 years. Because we havent had a recession, we dont know how various asset classes will perform under such stress tests (note this applies to both property and shares, but at least with shares i am liquid, i can move quickly, i cant do this with property).
Economic systems tend to evolve within their environment. Keep that environment constant for long enough and then insert an exogenous change, the effect on the economic system tends to be greater with that exogenous insert, than if the environment was not held constant.
I also think there is a high probability of future higher than comfortable structural inflation. Structural inflation will effectively tie the RBA hands regardless of economic conditions.
Very very true. Not just the link of corporate profits to economic growth, but corporate profits linked to the wealth effect through ownership of housing (what proportion of consumers 'wealth' is represented through equity in their houses).
However consider 3 different conditions, 1 positive for residential property, but two positive for shares.
(a) Economic conditions great, property prices grow fast (good property, good shares)
(b)Economic conditions OK, property prices stagnate (negative for property, but potentially still good for shares, given current share price levels).
(c) Economic conditions bad, property prices drop significantly (negative for property, negative for shares).
Actually in the long term both shares and property have statistics on their side. Look at the 100 year returns.
I agree with your comments about shares, thats why i said above part of an investors consideration what to do depends on their comfort levels investing in other asset classes.
I think alot of people are in for a rude shock about this, too many people have caught onto the bandwagon that wealth creation is just about leveraging residential property and then waiting.
Long run for me would be much longer than 10years. In the long run i am positive.
These are all good points,which i think will help to SUPPORT housing prices. Imagine rolling a 10 sided dice. 1 very negative, 10 extremely positive result. Now add maybe 2 or 3 to that dice for your factors and then roll the dice.
One never knows the future, most of the time 'risks' come out of unknown factors. I very much believe in the gravitational pull of the mean.
I question this. You forgot the growth component. Its the growth component that justifies debt. As to inflation, yes this is long term positive, but not necessarily short term positive. In the short term it can be a significant negative as interest rates rise, but the revenue side of things can take time to adjust. Many people forget the late 1990's. People were saying property would be a bad investment because of low inflation. Low inflation=bad for property. Why were people thinking this? because of reference to the past where inflation was higher (and interest rates where higher). But what happened, they didnt factor in the increase in affordability through lower inflation = lower interest rates.
My main concern is potential volatility during the next 12 years based on current market prices. By year 12 you have a high probability of being correct but what about inbetween.
Am i bearish on Australia's economy:
I think there will be difficult periods ahead, when i have no idea, and the degree of difficulty i also have no idea. But consider Australia hasnt had a recession in 16 years. Because we havent had a recession, we dont know how various asset classes will perform under such stress tests (note this applies to both property and shares, but at least with shares i am liquid, i can move quickly, i cant do this with property).
Economic systems tend to evolve within their environment. Keep that environment constant for long enough and then insert an exogenous change, the effect on the economic system tends to be greater with that exogenous insert, than if the environment was not held constant.
I also think there is a high probability of future higher than comfortable structural inflation. Structural inflation will effectively tie the RBA hands regardless of economic conditions.
Very very true. Not just the link of corporate profits to economic growth, but corporate profits linked to the wealth effect through ownership of housing (what proportion of consumers 'wealth' is represented through equity in their houses).
However consider 3 different conditions, 1 positive for residential property, but two positive for shares.
(a) Economic conditions great, property prices grow fast (good property, good shares)
(b)Economic conditions OK, property prices stagnate (negative for property, but potentially still good for shares, given current share price levels).
(c) Economic conditions bad, property prices drop significantly (negative for property, negative for shares).
Actually in the long term both shares and property have statistics on their side. Look at the 100 year returns.
I agree with your comments about shares, thats why i said above part of an investors consideration what to do depends on their comfort levels investing in other asset classes.
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I think alot of people are in for a rude shock about this, too many people have caught onto the bandwagon that wealth creation is just about leveraging residential property and then waiting.
please note these are only my opinions.
As i have said a number of times, my 'property investing' sphere of knowledge is quite limited.
My comments are appropriate to my risk tollerance levels, debt levels, income leves and knowledge levels. They could well be completely inappropriate to someone else.
As i have said a number of times, my 'property investing' sphere of knowledge is quite limited.
My comments are appropriate to my risk tollerance levels, debt levels, income leves and knowledge levels. They could well be completely inappropriate to someone else.
10 yrs is a long enough period in the world of investing. Significant equity can be created in that timeframe if you play your cards right. I can guarantee you a lot of money will be made by people in real estate who know what they are doing in 10yrs time.
Yes, I also believe in gravitational pull to the mean too
The one who can take advantage of that volatility/uncertainty will do very well. Some of the best investing opportunities arise during times of volatility/uncertainty for ppl with long term view.
Even though Australia hasn't had a recession in 16yrs. The biggest risks for Australian economy is a significant slowdown of it's major trading partners (aka China, Japan, S.Korea, India etc.) which is mostly Asia. You have to be bearish on Asia for Australia to have a real chance of a major recession. Do you have strong arguments on why you believe countries with populations in excess of 1 Billion will stop striving for economic growth and a better future for themselves? Remember, these counties have only just started, there is so much more work to be done before they would be considered a developed economy. And once they are done we will have a massive new consumer market of over 2Billion ppl which will make the American consumer demand look pale.
It is pretty much given that the Inflation will be high. With the rate at which commodity contract prices are rising for Mining companies there is absolutely nothing the RBA can do without affecting other parts of the economy. I think the RBA will get used to 3 to 3.5% inflation in the future. Which assets classes would you prefer to be holding with high inflation?
Which one would have turned out to be a set and minimum management? Which one would have performed better with managed leverage risk? Consider, the scenario where you keep re-financing at 80% every time your house price increased? I can't do that with shares without adding significant risks. Which asset class would have generated more equity after 100 years with constant 80% refinance and invest?
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I believe your reasoning is mainly because of the current Melbourne property price growth. Yes I believe Melbourne has had a 15%+ CG for 2 years in a row. There is a good chance market will have a small pullback and may be stagnate for a couple of years. Any serious investor should be familiar with market cycles for asset classes. If you were to do a poll on how many investors on SS are considering investing in Melbourne now, I think you will see a majority say No, Not Now it is overpriced. The yields are just too low. But they would rather look at somewhere like Brisbane and then next year look at the west coast. Property investing is not about buying any property in any market or writing off the entire property market asset class just because your neighbourhood has overpriced property.
Cheers,
Oracle.
[QUOTE=oracle;691919
Which one would have turned out to be a set and minimum management? Which one would have performed better with managed leverage risk? Consider, the scenario where you keep re-financing at 80% every time your house price increased? I can't do that with shares without adding significant risks. Which asset class would have generated more equity after 100 years with constant 80% refinance and invest?
[/QUOTE
For most of what you are saying as far as property and why it will increase over the next 10 years I believe you are quite correct. but as for statements you have made a above you are well and truly under studied and very wrong.
what is $1000 invested with westfield holding (not the trust) in 1960 and only dividends reinvested worth today.
Sir you are kidding yourself and anyone attached to you,it is a stupid statement. If you truly believe that statement you have missed something.
An enterprise against a stagant piece of property that actually devalves over time you are b******ting yourself or really believe it.
Which one would have turned out to be a set and minimum management? Which one would have performed better with managed leverage risk? Consider, the scenario where you keep re-financing at 80% every time your house price increased? I can't do that with shares without adding significant risks. Which asset class would have generated more equity after 100 years with constant 80% refinance and invest?
[/QUOTE
For most of what you are saying as far as property and why it will increase over the next 10 years I believe you are quite correct. but as for statements you have made a above you are well and truly under studied and very wrong.
what is $1000 invested with westfield holding (not the trust) in 1960 and only dividends reinvested worth today.
Sir you are kidding yourself and anyone attached to you,it is a stupid statement. If you truly believe that statement you have missed something.
An enterprise against a stagant piece of property that actually devalves over time you are b******ting yourself or really believe it.
Mate, let me ask you a few simple questions.
1) Were you able to get 70-80% leverage against Westfield in 1960? I could have got a loan against virtually any capital city property if I had the serviceability.
2) Were you able to re-finance every time you experience capital growth like I can do with property and continue to buy/levarage more property with shares during that time?
3) If Yes, would I have been wiped out during the major stock market corrections since 1960 and now?
4) And now the most important question of all. Can you pick the next westfield with certainty today? I can certainly pick a property in blue chip suburb today with great certainty.
So, to answer your question. I am in this game to invest and manage my risks with titling the odds in my favour whereever possible. So, unless you can come up with strong arguments to the questions I asked you before you should stop kidding yourself and b******ting yourself if you think by giving one example of an extraordinary share performance you can prove your argument that property is not a good investment compared to shares
Cheers,
Oracle.
Mate, let me ask you a few simple questions.
1) Were you able to get 70-80% leverage against Westfield in 1960? I could have got a loan against virtually any capital city property if I had the serviceability.
Why would you bother, all the hard work of reinvesting the dividends every year would do me, By the way you have obviously checked as the answer is $230,000,000.00 roughly not bad return for that risk of $1000.00
"set and minimum management" also "manage my risks"
2) Were you able to re-finance every time you experience capital growth like I can do with property and continue to buy/levarage more property with shares during that time?
You can leverage higher than 70%-80% as long as you pay your insurance like everyone else, but as said why bother.
3) If Yes, would I have been wiped out during the major stock market corrections since 1960 and now?
By wiped out do you mean get cheaper and reduce my risk.
4) And now the most important question of all. Can you pick the next westfield with certainty today? I can certainly pick a property in blue chip suburb today with great certainty.
With all that serviceability going on, lets try your bank, or where you shop, and as you obviouly enjoy reading newspaper for those great headlines lets try one of those or maybe you enjoy a beer or a wine,
So, to answer your question. I am in this game to invest and manage my risks with titling the odds in my favour whereever possible. So, unless you can come up with strong arguments to the questions I asked you before you should stop kidding yourself and b******ting yourself if you think by giving one example of an extraordinary share performance you can prove your argument that property is not a good investment compared to shares
I think you stated "Which one would have turned out to be a set and minimum management?"
I have no need to give any more examples, just keep that serviceability going and thanks for that I'll await your cheque.
Cheers, same
Oracle.
And I'll state it again,
An enterprise against a stagant piece of property that actually devalves over time you are b******ting yourself or really believe it.
I think the later.
I just want to jump back to an older post, and ask is debt erosion cost effective?
Assuming inflation runs at the current rate (approximately 3.4%?) for the next decade then the buying power of one dollar now will be 70 cents in 2020. So the real debt has been reduced by 30%.
If mortgage rates sit at around 7% then the property's owner will have paid the equivalent of 70% of the price of the original loan.
OK, I've got a mixture of real and nominal figures here (and I can't be bothered to work through the maths properly
) but the debt erosion is far less than the debt servicing costs. (If it wasn't then banks wouldn't make money.) And that doesn't strike me as being good value for money.Graemsay
The thing is the rent covers most of the cost, so as a rule, the cost ongoing can be about 1.5% after tax, or even better than that if you buy better.
So to keep it short, if the cost to me is 1.5% and inflation is 3.5%, then over a long term the 2% will add up to a bit, especially if I can afford a couple mil in properties.
Noel
The thing is the rent covers most of the cost, so as a rule, the cost ongoing can be about 1.5% after tax, or even better than that if you buy better.
So to keep it short, if the cost to me is 1.5% and inflation is 3.5%, then over a long term the 2% will add up to a bit, especially if I can afford a couple mil in properties.
Noel
I just want to jump back to an older post, and ask is debt erosion cost effective?
Assuming inflation runs at the current rate (approximately 3.4%?) for the next decade then the buying power of one dollar now will be 70 cents in 2020. So the real debt has been reduced by 30%.
If mortgage rates sit at around 7% then the property's owner will have paid the equivalent of 70% of the price of the original loan.
OK, I've got a mixture of real and nominal figures here (and I can't be bothered to work through the maths properly
Correct.
Plus remember rent increases each year. So in 10years time it would be substantially higher. Whereas your mortgage repayment fluctuates at around the long term average of 7.5%.
Cheers,
Oracle.
I am not disputing how good shares investment can be. I think they are great. They can give you best of both worlds (high capital growth and high income).
My point is there are 1000s of companies listed on the stock exchange. It is never easy to pick a winner like westfield. Yes, in hindsight it all looks crystal clear. But unfortunately, we have to make decision in the present.
I like property because of the high leverage it provides and allows you to borrow money at the cheapest rate compared to other investments. You need to borrow money to build significant equity. Once you have that equity you can use to create more equity or cashflow or both.
I just find the odds of building equity through property and leverage better/safer compared to shares and leverage. You may beg to differ, and I have no problems with that. All I would say is good luck finding your next westfield while I take the slow but definitely sure way to build equity.
Cheers,
Oracle.
INTRIGUE,
I get what your saying. a house (a square brick box) does not produce income and depreciates over time. You must remember that WE the people living in the boxes are the assets. we go to work, get paid, then everyone tries to suck our cash..hahaha
Building cash flow from either shares and or property is a LONG TERM (min 10 years) investment. Good debt, time and knowledge create wealth. Not mug punting.
Shares are fun. Especially small caps if they take off, however, only if your prepared to loose.
A t the end of the day, the more quality derivatives you can create..the better off you'll be.
TSF
I get what your saying. a house (a square brick box) does not produce income and depreciates over time. You must remember that WE the people living in the boxes are the assets. we go to work, get paid, then everyone tries to suck our cash..hahaha
Building cash flow from either shares and or property is a LONG TERM (min 10 years) investment. Good debt, time and knowledge create wealth. Not mug punting.
Shares are fun. Especially small caps if they take off, however, only if your prepared to loose.
A t the end of the day, the more quality derivatives you can create..the better off you'll be.
TSF
