Young Investors (<30) Thread

Discussion in 'Share Investing Strategies, Theories & Education' started by Lam Thieu, 4th Nov, 2007.

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  1. bennymarsh

    bennymarsh Member

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    Just because the valuer at the bank makes a nice little commission on valuing your properties in that way, doesn't mean that is what the value is. You lose your job, your tenants lose their jobs, your going to be in a rush to sell those properties before the bank takes them off you and makes you bankrupt, thats when the valuer looks like an idiot because just like the guy who sold to you the place for $402K instead of the mythical $525K value (a property is only worth what someone will pay for it, you paid $402K, that is what it is worth!), you'll be happy to sell it at $350K just so you can get the bank off your back.

    Just ask anyone who has lost their house in the US or UK, or Spain, or Italy, or Japan, or Holland, or France, or Ireland, or..........what their house "was worth" when the bank lent them too much money for it.

    It's a risky strategy, not one that should be applauded.

    I hope it all works out for you, and every now and then it will work out for someone, but it isn't safe and it shouldn't be applauded.
     
  2. TechMan

    TechMan Well-Known Member

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    Hello BennyMarsh,

    Considering you believe this strategy is risky, and not safe (i believe a bad choice of wording considering we are talking about investing and not bunging jumping) what is your approach? In particular does it mitigate the risk that you point out whereby potentially any item of value today will be worth less tomorrow.

    Cheers
     
  3. toddp__

    toddp__ toddp

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    Sydney

    Hi Chris,

    I do agree, however it all depends on your risk profile and how aggressive you want to be I suppose. I also know that over the long term (last 100 years) property has grown at 10.4% PA (to be exact...lol) so I'm confident that my assets will keep growing at a faster rate than my debt, over the long term, this can only work if you protect what you have and leave buffers etc.
    .
    I don't believe property will just keep growing and growing year after year (goes in cycles of course), this is obviously why diversification is so important into other asset classes also. I'll be shifting a lot of focus on the sharemarket now also, I think it is a great time to be building a long term share portfolio now.

    Also, of course there comes a time in your investing strategy where you have to consolidate what you have, lower your debt levels etc. etc.

    Have you heard the saying - caps, collars, belt and socks?

    Basically means -

    Caps - when you start your investing career you tend to leverage very highly because you have little capital and can be agressive because you have time.

    Collars - next stage, this might be a time where you've got an investment base, but don't want to be so highly leveraged, possibly with family to think about and a bit more security concious.

    Belts - this may be coming up to retirement, start to sell down some of your assetts to lower your debt and tend to have more blue chip investments with little to no debt.

    Socks - very little to no debt, time of security and absolute protection - or purely in a position where you don't need or want debt.

    Just a simplification - was interesting to hear this analogy of the stages of investing cycles we go through.

    Cheers
     
  4. toddp__

    toddp__ toddp

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    Hi Ben,

    I'm not saying this is for everyone, I have a high risk appetite - but I also protect myself, I know if I have to stop working for 1-2 years, my portfolio will still be covered. I understand that a property is only worth what someone is willing to pay for it, and that is why in general you only can get equity out within a 12 month period, as it affects the property market for about 3 months.
    The surrounding properties, tend to then absorb the discount while the market still does what it does.
    When I've arranged these deals in the past, I know that within that market, this property would generally fetch around the 525k mark, yet I've bought very well and know I could sell it for that amount if need be, as just because someone has found an amazing deal, doesn't mean that sale prices of the rest of the market is all of a sudden going to drop 80k.......

    As I said, this is not for everyone, and if you do it in the wrong market at the wrong time, you can get yourself in hot water. I do a lot of research before I go into any deal, and ensure that I protect myself.

    Hope that makes some kind of sense always interested in others opinions....

    Cheers
     
  5. Ace1

    Ace1 Member

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    Location:
    Sydney, NSW
    My name's Adrian. Just a little overwhelmed by how prepared some young people are! My situation:

    22 and final year of studies, living at home currently. Casual jobs but so far this year saved about $500/month.

    I'm planning to go travelling for a fair chunk of next year so most of that $20K is going on that (I'm happy with that and I read the previous comments about world travel).

    My plan is long term so I've been co-contributing to my super and expect to be working maybe late 2010/2011.

    Assets:

    $20K in high savings a/c

    502 AMP shares, a bit from demutalisation and SPP to try to dollar cost out

    $10K in Macquarie Flexible Investment Managed Growth Fund MAQ0014AU
    dollar cost averaging and reinvesting dividends since Nov. 08 now worth $11420. I'm pretty happy with that performance, how does it measure up?


    My questions:

    1. I see a lot of people invest in different funds across sectors. Is this common and isn't the fees high?

    2. Investment properties seem to be on everyone's list. Is this a popular and effective investment method? Right now I don't understand enough of it/ have enough money and have enough interest to consider it.

    2. Margin lending: I'm looking at gearing to a 50% LVR and capitalising the interest. How sustainable/recommended is this with the lack of a regular income? (If lenders will even approve me). Again I'm familiar with the concept of capitalising but probably not detailed enough.

    Like I said I'm not too concerned with the short/medium volatility and am looking at 7+ years time frame.

    Thanks!
     
  6. Chris C

    Chris C Well-Known Member

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    Can you tell me what the average interest rates were over that 100 year period? Because like all good businesses it's not all about your revenues, it's about your costs and profit margins.

    So I think what BennyMarsh is trying to suggest is that you are playing a high risk game on very slim margins, but like all games some play it better than others (and like I previously said it sounds like you are reasonably clued up about the transactional side of property investing) but the downfall of the game your playing is that you, despite your buffers, are still carrying very high LVR.


    But why does it go in cycles?

    ;)

    It's interesting that you talk about taking high risk because you can afford to, but in the same post talk about spreading risk through diversification.

    Of course I'm not saying spreading risk is necessarily a bad thing, but whilst I'd agree that it can make sense to have exposure to multiple markets, I think it is equally valid a point to say sometimes it is a smart move to have no exposure to particular markets.

    So diversification for the sake of being diversified to me is just the average joe's way to getting roughly average results over the long term whilst they are busy earning their living via other means, and is not the pathway to creating substantial wealth through investing.

    And I personally don't think it pays to be a one trick pony when you are looking make substantial wealth through investments, but I fear a big majority of Australian property investors are exactly that. You only have to pick up any edition of Money mag or API to read some story about some couple who made millions purely through a highly leveraged property strategy in a few short years... I sincerely hope they broaden their horizons and adapt quickly to the times.


    Does that scenario factor for the possibility of your properties being untenanted, with a 25% price fall, and interest rates that are at least 200 basis points higher than today? Because this sort of scenario is a very real possibility of being the likely future given the current climate.



    Things can change very quickly because it's all based on confidence, and at the moment confidence levels are bouncing around like a yoyo.

     
  7. toddp__

    toddp__ toddp

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    Sydney
    Hi Chris,

    It is great to hear other peoples perceptions and views on investing. As we all know, there are so many theories and view points out there on the right way and wrong way to invest.

    Definitely understand at this point my LVR is high, however I'm comfortable with that at this point. There will come a time in a couple of years, where I will start to de-leverage and lower my debt levels, however my outcome at this point is to build my portfolio quickly, I believe right now in certain markets within Australia, there will be some great growth and opportunities over the next 3-5 years. I suppose that is a benefit of living in Australia, generally each state tends to be a different stage of the property cycle - while some states are down trending, some are flat lining and others are on the up.
    This gives us the opportunity to ride a growth wave, at the top of the cycle, move our money into a different market (state) and then consequently ride that wave.


    But why does it go in cycles?

    Absolutely. I suppose it all comes down to your perception, which cycle we are in right now and in what part of Oz you're talking about. Although some markets in Oz are in a down trend or flat line, some other states are moving, and are moving quickly. e.g. Sydney and Melbourne markets.

    ;)


    I certainly believe that as investors we shouldn't have all of our eggs in one basket, and diversification is needed - however diversification into the right asset classes to what suits the market at the time, and keeping abreast of changes in the markets and change your strategy to suit the market is absolutely required, but definitely not diversification for the sake of diversification, this just basically sounds like super funds who diversify for the sake of it.

    I do have a high risk tolerance for my property portfolio, but we know that we can make money over many different asset classes and having a number of different prongs to your investing strategy I believe is important as long as they suit the current markets.

    e.g.
    strategy 1: you may invest in property for long term growth and equity growth- and also diversifying your property portfolio across different states of Australia
    strategy 2: Blue chip shares - still for long term growth, cashflow (depending on stock) but also a more liquid asset
    Strategy 3: Perhaps options trading - basically pure cash flow

    Saying that, I haven't been putting much cash into the sharemarket over the last 12 months, that is up until recently.


    This has all got to do with your view of the market and fundamentals behind the Australian property market. A lot of people get caught up in the US markets, and try to apply the same principals to the OZ market (I'm not saying this is you of course). There are a lot of fundamentals behind the OZ markets which are vastly different to other countries where property prices have plummeted - supply and demand being a massive one of course.

    I see confidence levels going up dramatically in various markets - particularly Sydney and Melbourne - this has been trending upwards for a while. Auction rates last month in Syd were 74% and I think 79% in Melbourne.
    My philosophy behind my property investing is make your money on the way into the deal (which I've adopted from others) and capital growth is a bonus.

    Once again this depends on your view - I don't believe the property market will drop in these markets and particularly not by 25%. This is my view and I'm investing along with my view.


    I'm always interested in more views, if I pick up one thing from anyone I speak to, it is a great result.

    What are your personal views and strategies on investing if you don't mind me asking?

    Cheers
     
  8. Chris C

    Chris C Well-Known Member

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    It's very much a situation of live by the sword die by the sword, so if you are comfortable with your strategy and fully appreciate the risks then I'm in full support of it and I hope the dice fall your way.

    I only cringe when I hear of high leverage investment strategies undertaken by those that don't fully appreciate their high risk nature of their investment, but in most cases is refers to conversations with others I have off these forums, because those that manage to find these forums are more than likely to be individuals that have a reasonably good understanding of what borrowing to invest entails.

    My reservations about property have nothing to do with the location of the properties and state based business cycles. That said I can appreciate in the past such factors were more important though given the current climate I'm less concerned with what's happening in the various states and I think Australian property prices are much more synchronized at the moment (as the stats show).

    I have an economics background so my concerns center around more the financial fundamentals of the economy than any of the micro factors that influence property.


    See from my perspective diversifying property investment just by geography is not really diversification at all, because it doesn't really offer much additional protection again adverse movements from one investment to another.

    If you look at any of the property crashes around the world, when property crashes its doesn't really discriminate, as in all prices everywhere fall, the only difference is the degree to which they fall, but even this degree of spread isn't large for the majority of property.


    Eveyone likes to talk about the difference because they don't want to talk about the similarities. Whilst I'll acknowledge there are differences between the US and Australian property markets, I don't think Australians should delude themselves about the realistic probability that property prices could also crash here as well.

    You might find this thread interesting - http://www.invested.com.au/6/deja-vu-36812-new/

    I'm not saying it will happen, I'm just staying that there is every chance it could occur if things don't go our way over the next 12 - 24 months. My belief is we are far from out of the woods when it comes to this global recession and I'll personally be watching its progression like a hawk.

    Stick to what I know. Buy low sell high. Make profits not losses. Keep my eggs in good quality baskets. Follow the money. Buy reality, sell dreams.

    :D

    So with property, current view is there is too much risk of debt deflation going into bad economic times. I'm holding my one IP but am always on the look out for prominent sell signals (not seeing enough of them ATM to pull the trigger just yet).

    With stocks I honestly just don't have the time or incentive to be an expert in each company I would consider investing in so I will more than likely just stick to broad ETFs until I have built a portfolio that justifies spending more time researching individual companies in a bid to achieve an above market return.

    International Stocks - I like the look of Asia in the medium/long term. Not sure about short term, could go both ways. Will probably once again look to use ETFs to get exposure Asia (I presently have none).

    Commodities, not really sure at the moment, I'm bullish in the medium term but uncertain in the short term. I do have quite a bit invested in gold and silver (that's physical, ETF and shares). This centers around my distrust for government and central banks ability to effectively solve the problems we have created for ourselves.

    Bonds/Cash - quite bearish in the medium term, though I'm unsure about the short term. I also think this market is very dependant on governments and central banks responses to the forthcoming issues, to date their response of throwing money at the problem and using their printing presses don't exactly make one very trusting on them to do the right thing in the future.

    Business - I am investing the vast majority of my time and money into my business at the moment because I think it offers by far the best potential for return over the next few years, because most other investment options look quite poor.
     
  9. jason626

    jason626 Member

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    moe(melbourne),vic
    what type of business do you operate chris if you don't mind me asking
     
  10. Chris C

    Chris C Well-Known Member

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    An online one.

    Basically, just sell advertising on websites that I make popular - so I call myself an online marketer when asked to describe my job.
     
  11. ByronH

    ByronH Member

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    Lake Macquarie
    Hi all,

    Thought I'd give my 2 cents worth, as I just turned 29 the other day and can just slide inside the <30 mark.
    Currently working OS on private yachts, have been for about 5 years now and it's working out quite well for me. My salary is either Euro's or US Dollars and I only spend about 2 weeks a year in Oz, so it's all tax-free.

    Have managed to build a portfolio of 5 IP's, all just north of Sydney and currently rented between $270 and $290 a week, which makes them slightly positive geared. The plan is to get to 12 IP's and knock down the interest only loans considerably over the next 5 years.

    A lot of the yacht crew over here walk away from this industry with nothing, which is a considerable waste considering the wages we earn. Everyday I am talking to other crew about investing or buying property or even the benefits of just saving your money!

    Not really sure about shares, I only have a handfull of NAB at the moment.
    There is a lot here in this forum I'd like to read and digest, 17 pages worth!
    Looking forward to learning something.

    Thank you all for your input.

    Byron.
     
  12. Lam Thieu

    Lam Thieu Well-Known Member

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    Can you be my mentor :):p

    You're doing well mate, keep it up. I'm struggling to even make it property #3. I guess i'll need to aim for a lower price bracket.
     
  13. Lam Thieu

    Lam Thieu Well-Known Member

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    Melbourne, Australia
    An update to my status. I'm 25.

    I have two properties, both in inner-Melbourne. I bought one recently at $500k and my original one is around the $600k mark. Trying for a third, but the interest rates and FHOG boosting prices has me worried to go again now, will probably wait until next year and buy in a lower suburb price-bracket (and to also build a better deposit). Gearing about 75% at the momment.

    I have about $200k in direct shares spread against different sectors and over 15 stocks. This has grown dramatically in the past 1/2 year because i've been buying into those Share Purchase Plans (which i'm sure many share owners have done as well).

    I've also got about $45k in 5x managed funds which hasn't done as well for me. I was quite stupid to invest a chunk in late 2007 just before the mess and now trying to rebuild (I was quite new to investing back then and was mesmerised by the huge returns and didn't think that it'll drop that badly). I learnt my lesson. Holding for a recovery back to pre-2008 levels. I'm still contributing each month to about 3 of them. Trying to dollar cost average on the way up.

    My goal in the immediate future is to buy a 3rd property, SAVE SAVE SAVE and continue to delve into shares. I would really like a mentor to help me, especially on the property side, but don't know where you go looking for one of these. LOL,

    Was looking back at my very first post (just two years ago) and boy have things changed.
     
  14. ByronH

    ByronH Member

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    Wow, you're not doing too badly yourself.

    I never go any higher than $250k for my properties (for now) and tend to buy the place next door about 6 months later!

    Seriously, I only look at units or townhouses, usually in blocks or 4 or 5, 1 or 2 streets away from the main shopping/school/amenities areas.
    Go in, throw $5k down for new carpets and fresh paint and get the tennants in and do my best to keep them long term.

    The plan is to get to 12 and then sell 2 with the most profit and live off the proceeds.
    I like shares but the CGT is too much to swallow.

    What are the rules for avoiding CGT when selling your PPOR?
    Only live there for 12 months, or is it longer?
     
  15. Simon Hampel

    Simon Hampel Founder Staff Member

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    In most cases, your PPOR is CGT free when you sell.
     
  16. TechMan

    TechMan Well-Known Member

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    Hi Just_byron,

    For that price range, what areas do you normally target?

    Cheers
     
  17. ByronH

    ByronH Member

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    Hi Leandro,

    At the moment I am concentrating on East and West of Lake Macquarie,
    just outside of Newcastle.

    When I return to Aus to live I'd like to look at places further north, possibly up near the QLD border.
    I can't stand the traffic in Sydney, and Melb is too cold!
     
  18. Saffron__

    Saffron__ New Member

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    Location:
    Townsville, QLD
    Hey guys,
    Firstly, wow. You have achieved amazing things and should be so proud of everything you've done.
    My situation:
    Age: 19
    Occupation: full time student, with about 30 contact hours plus about 5 hours assignments each week.
    I also work part time (7 hours a week) to earn about $4000 a year
    I also have commitments to work experience (no pay) every week for about 5 hours.
    During university holidays I work, earning about $2000.
    I also receive youth allowance from centerlink as I receive no financial assistance from my family and pay for all of my own living expenses.
    Annually I pay just over $9000 in rent and food and receive $12000 total income.
    I currently have $3000 worth of shares in small companies that I only recently purchased and these have remained at a relatively stable price.
    I also have $5000 cash.
    It's not much, but I save almost every dollar I earn and I would really like to move into property investment. I play CashFlow 202 every week (I would recommend this game to everyone, it teaches you so much), and I am continuously reading books to help with investment strategies. However, I have found that with such a small income and with my parents being unable to help with a deposit ect. Moving into the property market is next to impossible.
    I was hoping that someone on here would have some advice that could help me take that first step into property investment.

    How do I get over the hurdle of being a low income-earning, full-time student, to begin my path to financial freedom?
     
  19. Johny_come_lately

    Johny_come_lately Well-Known Member

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    Hi Saffron

    The best investment you can make at the moment is a good education. Study hard and get good grades. The rewards will come your future.

    Read good books...... and InvestEd Threads.

    Good luck



    Johny.
     
  20. Saffron__

    Saffron__ New Member

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    Thank you Johnny, I'm doing my best; my personal motto is "good is not good enough" which keeps me fairly driven.
    Best of luck with everything you're doing!