Finally Selling My IP

Shasta,

Very good post and few good points.

I agree Chris should articulated it clearly as I even asked if this is the whole story or I missed the whole point of selling IP?
IP can give a good LVR to borrow more money to potentially invest in gold and create more wealth. Selling IP and cashing 15K will eliminate good tool to leverage and expend your wealth. Will not make or break the bank. Not much gold can be purchased with 15K in terms of investing can it?


I joined forum to learn from others, regardless if I agree or not. I also look for some positive escape from every day “doom&gloom” and get support from group of people I share common interest. I am also taking this opportunity to share MY opinion.

IMO many people are splitting hair in half in search to find recipe to become financially independence. Reading books like “The Intelligent Investor” by B. Graham does not make you intelligent investor. People very often miss very basics of investing. To learn how to run you have to know how to walk. You will be surprised to learn that most of the times answers are not in smart books but very simply in basics human behaviour and it works the same way for Warren Buffet and for any successful investor.

1) Buy when market is down, sale when market is up. (is selling IP today good decision?)
2) Spend less than you income is.
3) Be aware of asset classes: some will only bring you losses, others will appreciate in value over time. See point 1.

Investing in IP teaches you few lessons: money management, budgeting, self discipline, determination, time management. You can also learn much about yourself and depending on individual it can take some time. Only then you can make next step and progress. Looking at Chris (it is not personal attack) 3 months of experience in holding IP is very little time to settle, learn about yourself and making next big step. What if the next step turns “not as planned”
Yes, we can attack or defend people on this forum but at the end of the day I feel like part of group of people who have something in common and I wish everyone in this group best of luck and big success in wealth creation.

 

AHAHA - I love the fact that even in my absence from the forums I can still manage to start argumen... *cough* I mean discussion.



Anyway sorry for my delay in response I was in Canberra over the weekend.

There is no need to worry about me, I'm doing alright, and my beliefs don't depress me or anything. I just personally subscribe to the philosophy that the sooner you accept reality the sooner you can start dealing with it and moving forward. Obviously my version of reality isn't widely accepted yet, but you will all come to my side eventually... muhahaha.



* Please note the above comment wasn't serious, I'm just geeing all you bulls up - I understand why you see the world the way you see it, but rest assured I'll be doing my best to play devils advocate along the way.

Though on a more serious note, my opinion has changed from a largely optimistic new investor to a very bearish hoarder simply because I didn't know then, what I know now. It's that simple.

I, like most, subscribed to the dream that you could become fabulously wealthy by investing, often with great leverage, and holding for the long term coupled with the ability to do some simple maths to work out if the dividend/rental yeild was enough to help support the loan whilst writing the rest off on tax. LOL - now that I think about it I originally started looking into buying an IP (back in early early 2008) because I was realising how much I paid in tax and I wanted to start offsetting some of that via negative gearing...



My investing ideals back then centered largely around what I had learned from my parents, a few books, the various speculations I had made on the share market over the years, reading mags like Money and API, etc Basically I had a VERY stereotypical understanding of how to invest to make money over the long term. The only significant difference would have been the fact that I had studied economics for a few years, but nonetheless I would have said my investment views were very stereotypical.

Unfortunately/fortunately for me, my decision to start seriously investing, ie buy IPs, gear into shares, etc came at a time (early 2008) where a lot was happening in the world of finance and economics. I say unfortunately because I think the gravy train of making easy investment fortunes are gone and I missed the boat, but I say fortunately because amongst all the turmoil I got very intrigued and wanted to learn as much as I could before borrowing massive amounts of money, and as a result I spent 3 - 6 months studying the crisis and now I feel I'm fortunate that I'm in a position where I stand to lose very little (assuming I sell my IP).

I don't know what back-winding means, but I like to think I throw in a few good bits of info and insights coupled with some facts and figures from time to time.

But this is where we differ on opinion, I don't feel like Australia has been through a recession like this before (at least not in living memory) and I don't think a lot of people will be coming out of it with their jobs, assets and most of all they won't have their "irrational exuberance" towards investing.



Also I think it's worth pointing out I'm not assessing what this recession will be like based on my firsthand experience largely because I have none, which is why I base my assessments on fact, figures, and lots and lots of research and reading. So with the information I have studied, my intuition tells me this will be the worst recession since the Great Depression, which is nothing like the mild Keating recession. Thus my reasons for selling my IP.

I think a big part of our difference of opinion is that I don't get overly caught up in Australian based news nearly as much as I study the world markets. For me and my very macro focus I perceive Australia just as a laggard economy following the US, EU, China & Japan's of the world. Those economies stimualted our boom, and those economies will drag us into the bust.

Unfortunately for me, the REA gets a massive commissions whether they sell the place for 600K or 650K, so I'm wary of just how much advice I can take from them.

Thanks for the tips, I will have to look into the state of the place as it is currently rented out.

I unfortunately only got to review it after it was published, because my mate who I invested with approved it while I was down in Canberra. Upon reading I thought it was "reasonable", but coming from an online marketing back ground I definitely would have tried to jazz it up a bit. I'm always surprised how poor the copy writing techniques and use of NLP are when it comes to online RE listings...

Good tips. Thanks.

Awww... thanks! It's good to hear that someone appreciates my ranting from time to time.

Once again sorry for that rant. I was very disenchanted that day. To be completely honest I reread what I wrote in that post a number of times and still posted because I was in all honesty angry about how my opinions were continually being belittled based on "feelings". So I was well aware of the "unconstructive" nature of the post - but I was angry to the point where I didn't care.

I'm slowly but surely learning to care less about other people and what they choose to do with their lives... though I have always struggled with this. I have just always been someone who is unwilling to leave anyone behind. I seriously think I might have a subconscious complex about leaving people behind; it might stem from my mother leaving me behind in a shopping centre or something when I was a child.



Either way I guess I just sometimes get scared that the depth of this recession will catch a lot of people I know off guard and may take them to the wall, and I don't want the fact that I could have helped to rest on my conscious. Seems crazy I know...

I think Shasta has already covered this point well, I have on multiple occasions expressed where my money is, and why it is where it is. To be completely honest I remember the first time I really expressed how worried I was, and Sim you told me to go do some research on who were the winners in the Great Depresion if I was so worried. So I did - and I followed your advice and then after getting informed I acted on that information, and I'm happy to say that I'm about 50% better off than I would have been if I hadn't have taken it. So in a way I owe you quite a bit.

That said, if anything I could question why most others on these forums seem less forth coming about their positions now and what they are doing to position themselves for the next few years.

My continual negative sentiment about the world is no different to the plethora of people that want to have a continually optimistic opinion the world. They should both be allowed to be heard equally. Anything less is just discrimination in my eyes, otherwise this forum would become as useless as mass media, and a waste of time for all those that visit.

I should point out again, as I have in the past, just because I predict tough times ahead doesn't mean I WANT them to happen, I'd bloody love for the gravy train to start chugging along again, I just don't see it happening. So my plan for "moving forward" is simply, protect what I already have and wait for the reset. When things look like turning you can bet your bottom dollar I be wanting jump right back on that bull, but right now I have no desire to pick a fight with this big bear.

Blasphemy.

LOL - no one wants to ignore the controversial guy - it's what bring the spice to forums and gets the noggin thinkin...

LOL - I reckon I should just start sending what I want to post to you, because you defend me way better than I defend myself!

I'm really not feeling JMK theories given the current circumstances.

I very much look at the idea of government expenditure as only exaserbating the problem rather than solving it. To steal a phrase from Niall Ferguson, you can't solve a crisis of indebtedness with more debt. All the government bailouts are is a transference of debt from consumers and business to government, but seeing as government doesn't actually make any money, it just has the ability to transfer it, ultimately the only way this government debt can be repaid is by greatly increasing taxation on the very people you were hoping to help. So what's the point... please don't argue the multiplier effect because if you ask average joe on the street the only thing that $900 is going towards is paying down debt, which doesn't stimulate the economy.

This doesn't even factor that stimulating an economy in a GLOBAL recession means all countries around the world will be competing for a limited supply of funds only pushing bond prices down. In addition to this with governments owning the burden of debt going into this recession the likelihood of government default or massive inflation becomes a big risk which creates a whole bunch of other problems.

When all is said an done with, historians may well look back at this recession and say that the US should have just let AIG fail and take the excessively leveraged system with it, and just started from scratch. So it is safe to say that I'm siding with the Austrians more than JMK.

I don't mind having to justify my opinions, so I don't mind being challenged in that sense. Though I do mind having to justify my self worth or value, but as I have said in other threads, I just have to trust my judgement and let time prove me right or wrong.

I'll be honest, I hadn't even thought of that - and it's not the craziest idea either if we can't sell the place for what my mate wants. Does anyone know the implications of using equity in an IP to invest in gold?

Also does anyone know what would happen in the event that I use equity in an IP to invest in gold and then the value of the IP falls below the level of debt, as in I move into negative equity (assuming no growth in gold)?

Luckily for you these investment forums have posters that are more focused on "reality" rather than "escaping from reality" because investments are much better made based on the former.

These lesson are not exclusively learned by buying an IP though. For many I'd hope they'd have all of the above before they bought their first IP.

I fail to see what revolutionary insights I get out of holding an IP for 3 years as opposed to 3 months...

I'll admit the whole buying the IP and getting a loan was a good process to go through as a learning experience. Though I don't know if I "learned anything about myself" that I didn't already know, but then again it wasn't really a stretch for me to afford the place or anything as I already had the deposit saved, and it become positively geared within two months of settling.

 

Chris, I would imagine is very similar to LVR your property to buy shares. I would not go up to 80% but stop at 50% perhaps even 30%. It is very powerful tool to build your little empire if you plan it well. As long as you maintain cash flow and your repay interest to the bank you should be able to hold into your assets. Just make sure you get normal loan not margin landing or other “too good to be true” product.

I was refering more to the personal development rather than academic. I had to hold my nerws when interest was going up and sky was crushing down. 12 months ago we had very, very gloomy outlook for RE. How it changed in 12 months is just beyon me.

 

So was I.

See this is what I don't get. Why do people think that because interest rates are going down is a good thing for RE!?!



The only reason interest rates are going down is because the economy is terrible. A terrible economy is not a precursor to rising real estate last time I checked...

 

Because many people including me, think that this is one of not many assets still safe to bet money on. If share market stays at lows for year or two we will see more people getting into RE. How long can you sit on pile of cash for?
Let’s think about it. Traditionally high inflation pushes RE prices up. Don’t have graphs to prove it but it makes sense. We have major down turn in economy ATM. Prices of many assets went down what should give us below average inflation, yet we still have inflation just above target rate of 3%. What chances do we have to contain inflation if even during the down turn in economy it doesn’t want to hit the lows? with this in mind RE prices will go up in the future simply because inflation may get out of control.

 

I agree, but this is looking at traditional view of business cycles. I completely understand the principle and understand that this has been the way the system has operating for decades.

I, of course, am of the opinion that this time around even histrocially low interest rates won't offset the credit contraction so therefore it won't stimulate the housing construction market because property prices will still be falling.

The principle behind growing credit is that you need both someone willing to lend and someone willing to borrow. This time around I'm not sure if the borrowers and lenders will operate like they have in the past, as these are very different financial circumstances.

 

Hi Chris

Glad you came back- didn't think my comments would scare a devil such as yourself away

I hear where you're coming from with the logic on tightening credit holding up new housing but, anecdotally from the field, where I'm working at the moment you can't help but fall over financed FHB's at both sub $500K properties and places like Homeworld (Home Display Village) - they are stimulating the new build market and will continue to do so, to take advantage of both the lower costs of buying as well as the grant boost. As for falling prices, time will tell with the higher end of town but nothing's falling in the low side of town, that's for sure. *Disclaimer here: I can only speak obviously for Sydney!

Lenders are still forking out 95-100% lends to FHB's (albeit with tougher conditions including increasing LMI costs) but overall, I agree with you that it's going to be harder to get credit and this will affect growth. It has to.

 

Yes but those FHB are only in the market because of market manipulation by government - eventually that will have to end. In the long run FHOG are not good for FHB's, government or the economy, and I expect when multi billion dollar government deficits start rolling out of Canberra the public will be screaming to save a quick $10B+ by scraping the FHOG.

 

Yes, it stands to reason that the sub 500K market is the only market with any life left in it.

Just as it stands to reason that the rental shortage truly only exists in the sub $500 per week market.

All fingers point to the same conclusion, all shoppers want the cheapest shelter that is in some way commenserate with their incomes and as we all know average (shrinking) incomes simply do not justify anything but budget accomodation as things stand today.

So what does this mean? Does it mean we will continue to see high prices for shoe boxes and ultimately FHB's excluded from major cities altogether?
Or does it mean the market is priced to perfection, has realised its best possible potential and the journey back is about to begin?

The real estate market is creaking at the seams and that sound is coming from higher up the price ladder. As this pricing pressure works its way down
a price compression effect will take hold. That is to say, properties for 1mill will reduce to 750K to sell, properties that were 750K will reduce to 500K to sell, properties that were 500K will reduce to 350K to sell etc.

People continue to rue on about a property shortage in Oz but currently there has never been more property up for sale in Australia as there is today.

So whats the truth?
Not enough property? ...or not enough affordable property?

This will be corrected via price reductions. These FHB's will in time see losses even though they feel secure today that they're buying bargain basement priced property.

 

This is a very good point. The crisis itself, you would think, would intuitively increase demand for cheaper properties as previously high end property buyers downsize to more fiscally responsible accommodation.

OK so I'm assuming you are expecting good old Keynesian economic principles to kick in via the government jump starting the economy with increasing levels of spending.

I completely understand your argument, though I obviously have some reservations about the extent to what a Keynesian style stimulus program can really achieve, particularly given this is a GLOBAL downturn and that the model hasn't really been tested to any great extent with these globalised conditions. I'm expecting that the cost of governments raising capital in this environment will soon far out strip the productivity of that capital being injected into the economy. Then there is also the issue of whether the government injections can out pace the private contraction, which I also doubt.

Like I have said in the past, I'm expecting that the economic text books will be revised at the end of all this.

 

Are you sure this is the case today? walking on the streets I can see more signs "SOLD" than for sale.

Well, there are suburbs were no FHB will ever enter. It is 2nd and 3rd time buyers and usually they are not in with big overload of mortgage. Why would they sale if they worked whole life to achieve it? To downsize and go back to less desirable suburb?
Sooner or later FHB will upgrade as well so it is just the matter of time when market picks up again.

 

Dudek, I'm bringing you facts and you're offering me anecdotes.

Manhattan Apartment Prices Get Cut Most in 5 Years
Bloomberg.com: Invest

...this could simply never happen in Sydney or could it?

 

No, I am using “everyday” indicator. The same indicator suggested to monitor timing to sale gold.

I know I may be too optimistic but… when the organic matter hits revolting thing I will sale my IPs. That is why I got them in first place, kind of security in case it hits that revolting thing. ATM I have no reason to loose my sleep even if prices go down. As of jobs etc… I am contracting since 1998, to me any day could be THE DAY that I loose my contract so recession or not nothing changes for me.

Don't know, no one knows. But I do know Sydney isn't N.Y. It may take another 200 years to get close to it

 

I just thought I'd give a little update on this thread. Our agent ran an open house this past weekend (which my mate and I attended just to assess the cleanliness of the place) and we got probably 6 or 7 groups through, and we got an offer of $590K that day...

It was nice to get the offer, I was really worried that things in the last couple of months may have turned even further south, but as I mentioned previously we probably wouldn't be selling for anything less than an offer in the low 600's.

Anyway just thought I'd give you guys all the heads up.

 

I really should have updated this thread awhile ago...

Anyway we ended up only getting the offer for $590K back in March/April and our 2 month contract with the agent ran out, and we weren't really happy with her and how things were going plus the lease we had with out tennants ran out so, we just made the decision to put another set of tennants back in for another 6 months at $600/week, but they weren't happy for us to leave the place on the market while they were in it.

So in the end we decided to not renew the lease at the end of the 6 months which end in mid Janurary and now we have the place going up for Auction next Wednesday (February 17th)...

So somewhat exciting times - though I'm extremely disappointed to say that the offers we have had prior to auction have all been VERY dissappointing so I'm quite concerned that it's going to be passed in at auction after we have thrown quite a bit of money into advertising it.

We had 50 groups go through in the first 3 weeks of it being advertised, but have only received 3 offers to date, with only two registered bidders thus far...

Don't suppose anyone is interested in a 3/4 bedroom townhouse 1.5km from the CBD, with $600/year body corp, and has received $600/week rent over the last 15 months?



WEST END, Queensland 4101 - Townhouse for Sale #106267362 - realestate.com.au

 

I'm not expecting it to... it seems that the Brisbane market has been quite slow this year so far and clearance rates at auctions have been quite bad of late (I think the best week this year has been a clearance rate of only 30%), and like I said, we are getting lots of looks but not enough offers.

It would seem that there are quite a few investors out there bargain hunting at the moment, because all the people that have made offers so far are investors, and in my personal opinion they have been low balling.

 

Chris,
I had not come across this post before so an interesting read.
Is the reason to sell your IP still the same and if not, why are you still wanting to sell an IP with a good rent yield, irrespective of the current capital growth?

My personal view for IP's is that you buy median priced properties for the areas you are investing in. A $600k odd IP would not be my first choice, not until I had built a base first of 3 to 5 IP's elsewhere.

You were concerned about the property market crashing last year as were some other economist type people and share people. Those views by hindsight were proved incorrect. For individual properties, there is no hard and fast rule, it is about who wants to buy at that point of time you are selling.

I think in regard to your initial query, strategies for RE sales people, back end the commission structure. Say 1% for the absolute low price, say $580k then 5% or even 10% for anything above. I have seen it work well. What did you end up negotiating on the offer to sell?

Good luck with it
Greg