Young Investors (<30) Thread

When I read it, it definitely didn't seem impossible or anything... so I definitely don't think he is lying - he's only guilty of dreaming big IMO, and that isn't a crime in my book.

 

That was my thoughts exactly!

 

Wealth creation

This is generally good advice. The issue for many is that it will not create wealth as most people cannot save enough to fund their retirement years. On average income of $50k, after tax savings of say $4k pa, over 20 or 30 years is not substantial depending on the returns etc. Contributing to super, 15% goes straight off as contribution tax, fees and charges and usually insurance may take out another 5%. A report done in 2005 by some actuaries showed that depending on age, substantial additional funds needed to be contributed to super to close the retirement savings gap (i.e. for 25-29 age group, another 8.8% per annum above the 9% SGC. Get to 50-54 and you need 15.3% pa additional).

My view is that wealth creation is a finance strategy and it is about using other people's money to invest in capital growth assets. Banks will still lend 90% on residential property and buying the right type of property and structuring the finance correctly will set you on your course. Jan Somers base strategy is still a very good model to follow.

I prefer property to shares solely because the lenders do. There is inherently less volatility, the land won't go bankrupt over night, it is cheap to insure. Wealth is about acquiring income producing assets and using other people's money to do so will accelerate the speed you get there. You need a finance strategy, structuring your loans safely and securely, making sure you have risk insurance in place, have a safety net built in are all components you need to put in place.

Once you have a secure base of 4 or 5 IP's, then you can start to invest in the share market, or buy your own home or look at other strategies.

It is an interesting thread and I am all for people taking control of their future. I do some work with seniors as well and it is a tough life surviving on a pension. You need to take control of your financial future.

 

great post. being fairly young and new to the investment game, i have been pretty anti-property and pro shares since first getting into it, as shares have a lower capital requirement for entry, seemingly greater returns over the long term, as well as less hassle in terms of vacancy rates and tenants etc. recently though, I have started to realise that property really does have to make up a large part of your portfolio, simply for the gearing benefits that are unavailable when talking about shares and managed funds.

 

These sorts of comments really do scare me.

I read Greg's post and bit my tongue, thinking "each to their own", but when people substitute the word "debt" for terms like "leverage" or say things like "I'm negatively gearing" it's obvious to me that those individuals are still stuck in the mantra that "property prices can't fall" and that borrowing heavily to invest in property is "risk free" in the long run - which is not only very wrong - but also highlights the extent of the short comings we as humans have when we substitute our due diligence for just looking at what others are doing (herd mentality) and recent past experiences (heuristics).

Anyway, whilst I bit my tongue before I think I should put forward an alternative view, albeit less mainstream view, to help provide a bit of balance.

The first sensible question to ask after this statement is - why would anyone let you use their money to make money, when they could use their own to make the money themselves. The only reasonably response is that you will get a greater ROI than they would.

So whilst traditional lenders have morphed into banks that specialise in lending money, I'm of the opinion that there is a golden rule when it comes to using other people's money aka debt. The money you borrow needs to produce or facilitate the production of a "real" income greater than the real interest costs of borrowing that money. To borrow for any other reason is just gratuitous and not sustainable in the long run.

Now with this noted I should point out that in my mind houses, including IPs, are not really assets, in the sense that they don't produce anything tangible. A house is just a house, yes it can produce some rent, but the vast majority of IPs in Australia are negatively geared, meaning they are losing money, not to mention the houses themselves don't actually improve in quality with time, quite the opposite in most cases.

Now before people start shooting off the "but what about the capital gains" I challenge you to ask yourself, why would a house go up in value - and the the biggest part of the equation is not because of supply and demand, because the reality is despite most Australian developers being able to build more houses to meet supply - they don't. The answer is, the real capital gain from houses is just pure inflation (please don't quote me the RBA inflation figure I'm accutely aware of the figure, I'm also aware of the bias of the figure).

So if the prices of houses are inflating you can rest assured the cost of living is also inflating, leaving property investors no better off when it comes to purchasing power, and that is before considering the interest costs.

Now if a house is just a house, in my mind that makes it not much more than a commodity, so its major purpose is a protection against inflation - rather than a real net income producing investment.

Now if a house is just a commodity, then borrowing to invest in an IP in any other situation other than it being positive geared is not much more than a speculative bet on the value appreciating (ie there being inflation in the economy). My warning centers around the notion that this bet today is a very risky bet indeed, that risk should be factored in any decision to "speculate" on housing prices.

Also when people don't view debt as being "indebted" to a bank which makes you "morally, socially, and legally obligated to the bank" then you have misinterpreted the obligation that goes along with borrowing from a bank. From my perspective there are far too many people in Australia that are flippant about the notion for borrowing to buy a house, when the reality is they can't afford it.

Now lots of people think, the bank wouldn't lend to people they aren't great candidates - well I think a look at recent history shows fairly clearly that banks are happy to lend to most people. Also banks are not in the business or "providing leverage for Australians to achieve the dream of owning their own home" they are in the business of "making money" and they do it at debtors expense through charging them interest so they can live their dream sooner.

My argument is not that people shouldn't look to protect themselves from inflation through the purchase of assets like property, I just think using excessive debt to do so is quite risky, and a risk that is rarely factored due to recent history and the fact that most believe that inflation will usually errode the underlying debt. However its necessary to remember that banks are in the business of making money and if inflation rises commercial and retail lending raters will too because the banks won't be willing to lend money today only to be repaid in debased dollars tomorrow.

However if there is one thing I know to be true it is the only surefire way to financial freedom is hard work and working smart coupled with a little bit of ingenuity. In the last decade we have seen more speculative millionaires made from gambling big in the property and stock market, people who took high "leverage" into the market backing that asset prices would continue to rise, but live by the sword die by the sword and there has been no shortage of news around the financial fall outs from individuals and firms taking excessive leverage into the market.

Also behind all this, the important thing to not forget is that speculation and trading doesn't stimulate the economy in any real way. It's artificial. So if you are going to partake in such practices you'd want to be damn sure you know what your doing because it's a cutthroat industry where only the best get ahead.

I'm not saying there won't always be a small place for traders and speculators, but I am saying that when the most common way for Australians to to make it rich is to bet/speculate big in property, then you can bet your next dollar that eventually the illusion will fade and the debts will need to be paid on investments where their is no real underlying value.

Because at the end of the day every dollar borrowed needs to be repaid.

One of the great ways of knowing this strategy can't work in the long run is knowing that not everyone can get rich apply this strategy, because if everyone owned 4 or 5 IPs and their own PPOR, there'd be no need for a single one of the IPs, let along one of the other 4 or 5.

Making money is all about "production" selling goods or services. China is buying out the rest of the world because they produce twice as much as they consume. The US and UK are tanking because they are too busy buying plasmas and screaming or more welfare payments.

The way to wealth is working hard and working smart - selling goods and services that others want and need. And remember the vast majority of people will never experience true wealth, that is reserved for the elite, and they get there by working harder and being smarter than everyone else. The reality is for most, that a retirement funding by a 25% per year savings rate will still be inadequate, if they have any intention on living much past 80.

No one should be caught up in the illusion that making money is easy, or that there is any set and forget way to wealth. We live in a world of competition that is also ruled by equilibrium, there will always be winners and losers, the haves and the have nots and that equation needs to be balanced.

*rant off*

 

Hi ChrisC,

Nice rant

All very true, in one of Steve McKnight's excellent books he says that property prices only go up a third of the time (probably the same time inflation goes up?)

Unfortunately inflation is the effect of pumping more and more money into the financial system, the buying power of an individual dollar is less over time as there are more dollars chasing goods/services hence why prices go up.

I think our heuristics are usually messed up as people always remember a year or two ago and not ten or twenty years ago.

Cheers,

Dan

 

I read one of Steve's books a couple of years back, and I remember taking a lot of notes on points that were very financial wise, not just in a property investment sense. So I remember it being a pretty decent, though I must admit I can't remember a lot of the book now.

As for inflation, I think Milton Friedman said it well, when he said "inflation is always and everywhere a monetary phenomenon" so by that I assert that inflation's biggest influence is always monetary policy, and I'd argue that in Australia, like most of the western world, CB's over the last two decades or so have held relatively loose monetary policy coupled with rapid credit growth within economies stimulated largely through financial deregulation.

So I'd say for the last two decades inflation in Australia has been ever present - despite what the RBA's underlying CPI figure would tell you. The best way to experience this is to look back over any three year period in the last two decades to see if you can remember a point where the cost of living was cheaper or even the same at the start as well as after three years, in either a nominal or real sense.

When I had this discussion with my mother I concluded that the cost of living in Australia probably doubles about every 10 years (ironically much like housing prices) which is much more rapid than the 2.5% CPI rate would suggest.

LOL - what we all really need is a vivid memory of the last 100 - 200 years of financial history to prevent the shortfalls of our very short term memories and lazy dispositions.



Maybe medical science can not only help solve the aging process but also our financial problems!

 

A quick rant reply

People will choose their own path to their financial future or more often will do nothing. Statistics from ABS over a long period now clearly show 5% will choose to do something to be able to retire financially independent. Many people do the hard work all their lives yet still end up on the pension. I work with those who have done that, followed their parents advice and worked hard, saved where they could, paid off their mortgage and never taken on debt and they may have been able to retire without debt but with no savings other than their own home. It is not enough.

Wealth is about owning (or controlling) income producing assets. For those who have the capacity to run a business that produces and makes money, excellent but you do not get rich just on an income. Most of the population work for a wage. The options are - work harder or longer, save more, or do something else like invest. The first two options are often difficult and are not sustainable due to the normal life-cycle events, married, kids, one income, school fees etc. The third is to invest and many are too scared, not enough interest or concern and uncertain how to do it.

I agree with Chris on some points, mantra's like negative gearing for its own sake is stupid. The reality of todays environment is that many properties close to CBD's will be purchased as negative geared properties due to price and rent yields. This is in the short term, longer term they should become positively geared. The whole purpose of investing is to have an income producing asset yielding a return greater than its costs. I have not heard the approach before that a IP is not an asset. The building will depreciate in value over time but it is rare that the land component will.

I have a different view on the above and the research certainly differs. There have been a number of studies on long term real price (after cpi) movements of property in Australia and all show an upward trend over time. Inflation is a component of price increases but it is not the only driver. Some of the research can be found at the following:
www.arrive.com.au/files/Articles/Olivers_Insights_No05_2008_Housing_prices_130208.pdf
Long term housing prices in Australia and some economic perspectives | UNSWORKS

I do not pretend that house prices always increase, there have been times as you can see from the graphs that they can and do fall but the volatility is far lower than for shares. The research done on risk/return equation of various asset classes show residential property outperforms the share market significantly (review research from Residex, ANZ etc).

Australian builders are not able to build enough houses where people want to live. As the demographics change and transport becomes more costly, there has been an increased demand for living closer to CBD's. Demand and supply equation is a large driver of prices for inner suburb properties. Again the research shows the inner suburb housing prices increase more that outer suburb prices.

There are many property investors in Australia because many see it as a way forward and it makes more sense to them than the share market. The problem is that the vast majority (again review ABS stats) only own one IP. It is not enough. The conventional view is that people believe they need to pay the holding cost from their own income, the astute investors do not and that is how they build a property portfolio. You need to do it safely and securely and with a large safety net built in. It is not about speculating, it is not a quick get rich strategy, it is a long term buy and hold strategy of buying IP's that people want to rent. In that sense I agree with Chris, it is about providing a service that others want and need. Wealth is assets less liabilities, so the goal is to increase one and decrease the other over time.

Tax benefits should be regarded as just that, an additional benefit but not the reason for an investment decision. I see too much of tax driven schemes that just do not make sense and the collapse of Timbercorp and the like reflect that. I see the greed and lack of awareness as well, the Storm Financial mess was as a result of mixing strategies relying on a rising share market using margin lending.

The assertion that the vast majority of IP's are negatively geared is incorrect. Stats from both ABS and ATO show that currently around 63% are negatively geared but previous history showed far less were. A negative geared position should only be a short term position where the intention is for IP's to become positively geared. With rising rents and continued low interest rates, we will see more positively geared outcomes.

People can make their own choices and I suggest you do the research and understand the options available.

 

Don't get me wrong, I completely agree people need to be proactive when it comes to managing their finances, I'm just saying following the herd without popping your head up to check out the scenery for yourself is very dangerous because those buffalo may be stampeding towards a cliff.

So and borrowing very large amounts of money to invest in property is a very risky strategy, and that risk in the past has rarely been properly factored, and in this day and age miscalculation of risk will bankrupt you.

The way I see it our economy is very confidence based. As in when people are confident they borrow and they spend, and over the last two decades in particular there has been quite a large increase in the credit levels within in Australia - and borrowing to finance housing has been a massive part of that growth. Now for all intents and purposes debt/credit is considered money within our economy so every time someone borrowed to buy a house or increased their debt levels that helped stimulate the economy and as a result also helped stimulate asset prices.

However with most people now turning over a new leaf and looking to save more than they spend, and looking to pay down debt rather than increase their debt levels you can rest assured that the capital growth you speak of, which in my opinion were largely stimulated by inflation from rising debt levels, will no longer be present like it was. If anything there is every likelihood that asset prices may fall if everyone simultaneous looks to reduce their debt.

I never meant to imply that working hard is enough. I meant to imply that to really be wealthy you need to be able to work hard AND work smart.

Also working 40 - 50 hour weeks like most people isn't working hard. Working hard is working 50, 60, 70 hour weeks.

Your very right, it's not enough, but that also depends on your definition of "enough" unfortunately in our world of "keeping up with the Jones" everyone wants everything, and they want it for nothing.

Though I should also point out that "borrowing" is not the secret to wealth either, and the thing about debt and asset prices is that they are normally cyclical because when people are borrowing lots of money the asset prices go up, and when they are paying down their debt and saving money during recession asset prices fall.

So the only way borrowing money can increase your overall prosperity is if you can time the market better then everyone else, because the sad reality is taking on debt/leverage when asset prices are moving up will increase your returns but only if you sell out before they recede back to their rational levels. Of course if you jump on the bandwagon when the bubble is at the top you have not upside potential and all of the downside.

I agree, people need to be able to save part of their income and put those savings to work through the purchase of income producing assets.

However I just dislike the way IPs are offered to so many as the smart option, because they offer benefits or "higher leverage", "negative gearing", "low to no risk" and all the other rubbish the spruikers push - and unfortunately as was seen in the US I think now the vast majority of the population, including many people that should be in the know believe their own hype and have lost grip of the most fundamental of fundamentals when it comes to making money.

I'd also just like to point out I'm not bashing IPs because I hate property, I actually have an IP myself, and I think every class of investment has its downsides, I just think most are more acutely aware of the downsides of other investments, but have forgotten the reality of property investment precisely because it has been a good investment (aka hedge against inflation) for so long.

If you reread this statement, what you are actually saying here is you are speculating on extent of inflation in an economy. As in you, are willing to cop a loss in the short run because you believe that in the long run through the process of inflation, yields (and capital value) will go up relative to the debt because of inflation and general economic growth.

This is just speculating - not really making an investment based on the profitability of an income producing asset because the profitability is completely dependant on future events occurring and not to do with the present fundamentals, which are that most property investments turn a loss intially.

Though with that said, I appreciate that most people expect inflation to be ever present, because the RBA apparently is committed to keeping inflation between 2 - 3%. Though I think most people really overestimate their understanding of inflation and the workings of our economy in general (myself included) and also place way too much faith in government, central banks and commercial banks.

The building is what produces the income, not the land - the land is just a patch of dirt, it's the same as any other commodity be it coal, oil, wheat, timber, etc - in the fact that when it just sits their it does next to nothing, but if your develop and refine it can serve a purpose.

I know my perspective on houses being more of a commodity than investment is almost a 180 of mainstream thought, and to reclarify my commodity theory of housing refers more to PPORs than IPs in the sense that most investments increase your income. As in if you buy shares you are paid a dividend, if you buy a bond your are paid interest, if you buy a machine for your business it usually makes something or increases productivity, but when you buy a PPOR is your ability to produce or generate income increased. The answer in the vast majority of cases is no, in the sense that their income and productivity is largely the same whether they live in a million dollar house or a caravan at a camping site. In addition to this a house also doesn't get any better at being a house with time, whereas most capital investments in a business tend to have ongoing productivity gains with time.

Of course with an IP it is different, but it's still important to note that those individuals paying rent are not experiencing an income or productivity gain from their investment either, therefore it's reasonable to expect that they won't be willing to pay exorbitant rents for the privilege, and therefore it is also important to note that the economy as a whole is not better off if we all have an IP or PPOR each - it's a complete waste of resources, and not to be confused with being a capital investment.

For every chart you get of "real housing prices over time" I can get one that tells a different story, and it always comes back to how the data is interpreted. So the bigger issue will almost always be where you get your information from, and Shane Oliver hasn't had a great track record over the last couple of years - not that I expect much from him - afterall he does work for a bank...

I won't say it's the only driver, but my argument is it is the major driver, but I could write an essay on this topic alone, so I guess I'll pose a question instead.

For what reason other than inflation would house prices go up, considering that in a normal economy where there are productivity, efficiency and technological gains every year which should increase the output of an economy. Now if you hold the money supply constant but increase output that should cause deflation (the good sort) as in the same amount of money needs to be spread amoung buy a larger number of goods causing deflation.

Now also hold constant the number of workers in the economy, and that their wages need not increase with time and increased production levels because their purchasing power is naturally increased through the process of deflation.

With all this noted, what reason is their for housing prices to increase by 10 - 15% per year?

Australian developers have TONS of undeveloped land that they are just sitting on for no other reason than it is not profitable to develop. If there were really customers to profitably supply don't you think businesses would...

Though I will concede that governments have played a major part in restricting housing development.

As for the supply demand equation, I know their are a lot of spruikers out there that would love people to buy into that argument, but the reality is project after project is be stalled because there are no buyers, and this includes CBD developments. The problem is buyers don't want to pay what it costs to buy, because for most it requires going into a massive amount of debt.

It only makes more sense because they can't be bothered to pick up a couple of books to have a read and learn. Just because property is the easy option doesn't make it the right option.

Actually it's more than enough... because if everyone tomorrow went out and got builders to build them some new IPs there'd be over supply, yields would drop, and the industry would tank.

It definitely has a large degree of speculating, just most property investors don't even know to what degree they are speculating, that's my point. And for most people it is their get rich quick strategy, because the other alternative is save 25% of their income over the next 40 years. I'd bet my bottom dollar that real estate has produced more millionaires in Australia over the last decade then any other means, but it carries with it massive amounts of risk that for most are not weighted correctly. You only need to walk through any book store, pick up a money mag, or anything financially related to see a plethora of stories of how people went from $100,000 of wealth to $1,000,000 in the space of a couple short years.

That is the exact same principle most property investors base their strategy on. Greed, lack of awareness, relying on rising asset prices and yields (ie negative gearing) and the use of high leverage (can anyone say 95 - 100% loans, much higher than any margin lender operates with)!

So what you are saying that 63% of people that are investing in property are losing money!!! Also last time I checked 63% is much higher than 37%, it's nearly double.

Though with that said, I'd love to know what percentage of IPs are negative geared on a 100% loan! Because that is the big question. It's all well and good to say I'm positive geared with a LVR of 70%, but that is implying that the 30% of equity you have in the investment is making NO return despite all the risk its exposed to, and the investment can't even produce a positive return on a 70% LVR. Last time I checked that's what I call a terrible investment. The only way it becomes a good investment is if you factor long term inflation.

A good investment is one that yeilds a ROI, as in spend $100 and get $100 + X back. The property investment strategy used by most Australia completely depends on inflation.

 

at the end of the day, property is an appreciating asset, and just like shares, has a low level of risk over the long term, and as long as the investor has sufficient income to service any debt taken on. if you buy a growth asset, even at the peak, you can expect to make money over and above inflation if you hold onto that asset for the long term. now obviously there are exceptions to this rule (eg. a small startup IPO) but that is the crux of it. you cannot compare the situation in the USA to here, as we do not and never have had NINJA loans, or non-recourse home loans. I can't remember the stats off the top of my head, but the amount of 'sub-prime' loans called in by australian banks was nigh on non-existent.

i have to be honest chris c, that whilst you structure your posts very well and make yourself very clear, i dont think someone who is unsure of how even a simple leverage tool such as a margin loan works should be trying to tell others that their gearing strategies are wrong and dangerous http://www.invested.com.au/95/margin-calls-buffers-35711/

 

Go tell that to te Japanese property investors that bought at the peak in the late 80s, early 90s (though you can say the same about those that were in the Japanese stock market)...

Subprime and NINJA loans only started the falls - but you can rest assured that with property falls of 35%, so far, means that it's now an issue with very large percentage of everyday Americans that are in negative equity and defaulting, and that figure just keeps rising because housing prices are still falling because they are still in recession and their unemployment rate just keeps going up.

So whilst the NINJAs started the problem, everyday Americans that overextended themselves and used their homes as equity ATMs are now just as big a part of the problem (if not bigger than the subprime issues). It's important not to forget that the US housing problems still has further to run, and you don't see many people betting they will see their housing prices return to their old levels within the next 7 years (aka long run) at least not without massive inflation (which could definitely eventuate).

Are you serious... what makes you think I don't understand how a margin loan works?!?

I really didn't mean for any my posts to attack individuals, I was just looking to challenge the status quo to ruffle a few feather so that the young investors that read this read have a greater breadth of opinions and ideas to consider that includes the alternative of the mainstream thought which I think has some really big ominous flaws.

Just for the record, I'm not telling anyone what to do, hell I even said I own an IP myself, I'm just trying to open people's eyes to the notion that maybe, just maybe, they have also been miscalculating the risk of their investments (because they don't better understand the system as a whole) which has lead to them overextending themselves and that leaves them extremely vulnerable to complete bankruptcy in the event that things down turn south, this is especially applicable to young investors.

I'm not saying I'm perfect either, I know I have volumes of short coming and like most I'm still very much at the bottom end of the learning curve, but I do feel socially obligated to share what I have learned thus far, and with that said I'd just like to highlight these two paragraphs from my previous posts as I think they sum up what I'm really trying to get at:

My argument is not that people shouldn't look to protect themselves from inflation through the purchase of assets like property, I just think using excessive debt to do so is quite risky, and that risk that is rarely properly factored due to recent history and the fact that most believe that inflation will usually erode the underlying debt. However its necessary to remember that banks are in the business of making money and if inflation rises commercial and retail lending rates will too because the banks won't be willing to lend money today only to be repaid in debased dollars tomorrow.

I'd also just like to point out I'm not bashing IPs because I hate property, I actually have an IP myself, and I think every class of investment has its downsides, I just think most are more acutely aware of the downsides of other investments, but have forgotten the downsides of property investment precisely because it has been such a good investment (aka hedge against inflation) for so long.

 

^^ some really great posts, got me really thinking about my own situation!

the only bit i really didn't like the sound of is the working hard may mean upto 70 hrs per week..

the whole 'getting rich' thing wouldnt be worth it imo if it meant not 'living' which i dont feel i would be able to do working those sort of hours.. i understand if running your own business that may be required, but i think if you are working smart, you wouldnt have to work that hard... and as a final year accounting student this is exactly why im steering clear of the big4 accounting firms! but then again maybe im just a wuss.. and still in the 'university life' mentality...

my investment thus far has only been in shares, and im only now in the early phases of considering purchasing my first IP..

but this thread has now got me rethinking that..

.. im not bothered at all though, because at least i now know that i am actually thinking!

big thanks! (this is really turning out to be a great thread)

 

I agree that working smart can compenstate for working hard, but most the vast majority of the population there are limitations to their "smarts".

I don't mean for that to imply that unless you have an IQ of 130 plus you can't work smart. I mean it in the sense that the vast majority of people aren't smart enough to invest the time, energy and money to invest in their own "smarts" and therefore they will always be limited in how smart they can work.

It's also important to note, that not everyone can work smart. Society doesn't function with too many chiefs and not enough indians. But yes I definitely agree that working smart trumps working hard, but I also think that in the vast majority of case individuals have worked very hard to allow themselves to be in a position where they are capable of now working smart.

That's music to my ears. I think the title of the Napoleon Hill classic - "Think and Grow Rich" says it all, simply meaning "Think; and you will grow rich".

It's great to hear that this thread is of value.

 

hi all heres my status

my names jason

im 24 years old i have 5 properties in total

1 unit value of $75,000 brought for $69,000 last year (ip) rent for $85pw
total loan of $81,500 for both units
2 unit value of $75,000 brought for $69,000 last year (ppor)

1 house brought for $121,000 current value of $125,000 paid this year, loan of $119,000 (rents for $160pw) 6.8% roI

1 shop free hold paid $15,000 have not re-valued, only month old (paid for in cash) would rent for $100 a week/$5200pa % $15,000 = a 34% (roI)

1 shop free hold paid $14,000 have $15,000 loan - rent for 90pw = roI of 33%

in total $304,000 worth of property that rents out for $435pw or $22,620
total loans of $214,500 = net worth of $89,500 and lvr of 70%

 

Hi Jason,

Good stuff !

I notice you're in Melbourne, but I'm interested in where those shops are, that are so cheap??

Cheers,

Chris

 

i actually live about an hour from melbourne a place called warragul and all of the properties are a couple of towns up called moe the shop free holds are in an arcade in the main st of town the town is a little down at the moment with a few eye sores and things but these are going to be fixed in the next year or so so it should have good capital gains in the near future i would think, one of the shops i plan on having as a business that my girlfriend can operate from the other as an investment, (and potentailly another business if things go well), while i continue my line of work (farm contractor) as another souce of income

i would like to hear of anyone on this forum if they have properties around the warragul,drouin,moe areas. thanks for reading.

 

Jason626,
I work with a number of young investors and I shake my head at times at the level of sophistication they have compared to what I knew at their age, even though I had done an commerce degree. Well done and a great start.

Most investors start in their own local area as they know the area and appreciate the market value. The two potential issues with regional areas are consistent capital growth and potential of economic hardship. You may consider looking further afield next time around for a neutrally geared IP offering potentially higher capital growth so you can leverage off it to further build your property portfolio.
Fantastic

 

Hi All,

Sorry for the delay in response to an earlier post (page 14)

Thanks for the support Chris, I agree with earlier posts, I don't know why someone would want to come into a place like this and lie to make themselves feel good, seems kinda pointless to me, also not sure why people would want to come on here to de-credit others?



In response to a few other queries:
It is definately possible to build a property portfolio rapidly while not living on bread and water. It has all got to do with being educated, and then applying the right property strategy in the right market that will maximise your returns while protecting yourself.

For your info greygoose, I definately wasn't lying -

If anyone is interested, this is how I've built my portfolio to date:

purchase 1: 2bed water front unit on Gold coast -
purchase price $291,000
estimated current value at time of purchase : $330,000
renovation cost: $12,000
end value after renovation: $360,000
time period: 6 months

Strategy - bought at great discount, added value through renovation and refinanced - pulled out $70,000 in equity

Purchase 2: 2 bed, 2 bath unit in Sydney (Dulwich Hill) -
Purchase price: $402,000
value at time of purchase: $525,000
Pulled out $40,000 on settlement

Strategy: bought at massive discount, negotiated rebate with vendor on settlement (recycle equity quickly)

Purchase 3: 2 bed, 2 bath unit in Gold coast
Purchase price: $265,000
Current valuation at time of purchase: $295,000
Renovation cost: $15,000 (and added 80sq metres of land)
Value after renovation: estimated at $350,000

Will be refinancing both the 2nd and 3rd property in september and am in the process of looking at a couple of duplexes in sydney (600k) and an 12 month off the plan in Melbourne in Brunswick (385k).

If you do the sums on the above, you can see that leveraging from your equity to build a portfolio is not as difficult as we're all lead to believe, especially if you buy the right deals and protect yourself. (I suppose this is why only 3% of the population own more than 1 property!)

One of the greatest pieces of advice I ever received and something I practice, is to leave a buffer in place to cover any negative gearing in your portfolio so you're not dipping into your own pocket, so I have enough funds set aside to cover the negative gearing on my portfolio for 12 months, some investors I know have 2 years, some 6 months, some none - all depends on your risk profile.

Perhaps where greygoose got confused, was thinking I owned the properties outright? Definitely not ( not yet anyhow) and it doesn't bother me having debt, as I know the equity in my portfolio is increasing at a faster rate than the debt.

I believe that building wealth in this day and age, you cannot apply the same principals that I know, I was taught by my parents anyhow. Buying 1 property and paying it off takes a little too long for my tastes.
Also, we need to be educated and diversify our investments (property, shares etc. have different strategies for long term, equity growth, cash flow etc. and have a number of income buckets and probably one the main things,the right psychology (prob a new topic all together.)

Just my thoughts anyhow.

Keep it up everyone!

 

I'm also looking in the Brunswick area for off-the-plan. is the one you're looking at a 2-bedroom, if so which one is it can you let me know. PM me if you wish. I'm interested.

 

No prob, I always feel obligated to go in and bat for those willing to have dream they express publicly and that have the balls to wear their heart on their sleeve whilst they pursue that dream.

That's not just the principle of making good money it property, it's the principle of building wealth in anything.

I think you have a great attitude towards investing from the sense of making sure you buy well, not over extending yourself, etc but I think making the assumption equity will always grow at a rate faster than the interest on the debt is a VERY risky assumption to make.

I know I must sound like a broken record on these forums sometimes but I strongly suggest revisiting the principles of why home values appreciate in price, and do a bit of searching around for alternative views.