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How housing's history can mislead

Discussion in 'Real Estate' started by Simon Hampel, 27th Nov, 2005.

  1. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Article in the SMH: How housing's history can mislead

    The article basically uses P/E ratio examples to show that while yields are low - further growth expectation based on historical performance is very unlikely.

    Nothing surprising really - yields must increase once prices have increased, or else further growth becomes unsustainable.
     
  2. Glebe

    Glebe Well-Known Member

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    So Sim do you think rents will rise over time or will prices fall to reach the 5%+ yields again?

    I'm tipping prices will fall more :) :)
     
  3. Simon

    Simon Well-Known Member

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    rents appear to be rising in my local market north of Sydney.
     
  4. Maverick

    Maverick Well-Known Member

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    More stuff

    Here is another article with Tim Farrelly's view on using historical returns: Keep your eyes on the road ahead
    This article talk also about shares market.
    At the end it says:
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Both.

    It's cyclical.
     
  6. kooyman

    kooyman New Member

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    Sim

    Has anyone heard or used Hans Jakobi for investing in property!

    This is his latest tip!

    Property Tip 7 - Avoid this common mistake from

    Today I want to tell you something which is important
    if you seriously want to build wealth and stay in the
    property investing game for the long term.


    Everybody needs cash flow!


    A little while ago, I had a discussion with a young
    lady who is raising four children as a single mother
    and relies on government assistance for much
    of her income.


    Her investment strategy is to buy up properties
    over the next few years so that in six years time,
    when the government payments stop, she can afford
    to keep living.


    Because she doesn't need the cash flow today, she
    recently bought a cash flow negative property
    (to the tune of $20 per week after all deductions).


    Whilst I admire her for having the courage and foresight
    to invest, I question the logic that says "I don't need
    cash flow".


    Let's think about some of the benefits of positive
    cashflow for a moment:


    a) If her current portfolio is cash flow positive,
    lenders will look favourably upon her future
    loan applications since her ability to service
    more borrowings actually improves with each
    subsequent property purchase rather than
    being drained.

    b) Positive cash flow helps create a cash reserve
    to handle vacancy periods. This lets you sleep
    well at night, which after all, is the smartest
    way to invest in my opinion.

    Does that make sense to you?

    c) The aim of her investments is to support herself
    when her children grow up - so why not enjoy a
    good cash-flow today as well as tomorrow by
    focusing on the type of property that provides it?


    I invest in cash flow positive real estate - and by
    focusing on it, you're making money today as well as
    in the future - makes sense doesn't it?

    LJK
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Ahh the old cashflow versus growth argument. That's almost a religious debate on many property discussion forums.

    Cashflow positive real estate is all well and good - but it won't make you wealthy. Unless it also has growth that is (which most will have had over the last couple of years, but probably won't do so again for quite a few more years).

    The old servicability argument doesn't help much either - banks generally don't credit you with the full income from the properties - you'll still run out of servicability with cashflow positive real estate at some point ... unless you also get growth and manage to use that for more purchases.
     
  8. Jacque

    Jacque Team InvestEd

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    Sim' is spot on here, in that most lenders will only count 80% of the rental income when assessing you for loans. Equity is king, in my books, but I can understand why proponents of cashflow properties only choose to invest in such properties, particularly if they can't supplement the losses usually incurred from holding property.
     
  9. Nigel Ward

    Nigel Ward Team InvestEd

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    But surely Hans makes his cashflow from flogging pricey seminars and books doesn't he? :D
     
  10. Simon

    Simon Well-Known Member

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    Sydney rents hit $500/wk
    From: By Nicki Bourlioufas
    November 29, 2005

    MEDIAN rents for two-bedroom dwellings in inner-city Sydney jumped 5.6 per cent to $500 a week in the September quarter from a year earlier as landlords enjoyed a tightening rental market.

    Rents for two-bedroom homes in Sydney as a whole jumped 3.6 per cent over the year to $290 a week, or by $15, according to the Rent & Sales Report from the New South Wales Department of Housing for the September quarter.
    During the quarter alone, the median rent for two-bedroom homes jumped $10 a week from the June quarter.

    Median rents rose $5 a week in middle and outer suburbs from the June 2005 quarter. Median rents remained unchanged in inner suburbs over the September quarter.

    Australian Property Monitor's Research Director, Louis Christopher, said the figures showed the first significant rise in Sydney rents for four years.

    "The rise has been as a result of many would-be property buyers waiting on the sidelines for housing prices to fall further and the fact that the supply of new rental properties has quietly reduced over the last 12 months."

    Mr Christopher believed there would be more rental increases to follow for the next 12 months, which is good news for suffering property investors but bad news for tenants.
    Reflecting the pressure on inner-city rents, median rents for two-bedroom units rose 5.7 per cent in inner suburbs over the year, 4.0 per cent in middle areas and 4.3 per cent in outer suburbs.

    Two-bedroom flats in Auburn recorded the largest annual increase in median rents (up 13.6 per cent), followed by Leichhardt (up 11.4 per cent) and Blacktown (up 10.5 per cent).

    The largest annual increases in median rents for two-bedroom houses within Sydney were recorded in Canterbury (up 12.0 per cent) and Auburn (up 8.2 per cent).

    Rents have climbed sharply in Sydney and across Australia as people seek to rent rather than buy homes with housing affordability hovering at historially low levels.

    During the quarter, the number of new rental bonds lodged with the NSW Government rose 5.2 per cent in Sydney, reflecting the strong demand for rental properties.

    A shortage of new housing stock is expected to keep upward pressure on rents and housing prices.
     
  11. Jacque

    Jacque Team InvestEd

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    And about time too, I say. Bring it on :)
     
  12. Glebe

    Glebe Well-Known Member

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    Here's the report:
    http://www.housing.nsw.gov.au/rsr/R and S Report No 73 Sep05.pdf

    It's not a bad read, first I've heard of this report. I think the average property investor can take some heart in it. For me, a renter, I take heart in seeing three bedroom houses in the inner ring unchanged for the year. But it picked up 2.2% for the quarter so it would seem rent increases will hit me at some stage.

    It's funny though - Randwick rents up 8.7% for the year, North Sydney up 15%, but Waverley down 11.2% and Mosman down 8% (Table 3).
     
  13. Nigel Ward

    Nigel Ward Team InvestEd

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    I think to some extent the rent figures in say North sydney get skewed by when shiny new developments with inflated rents first become available...
     
  14. MarkP

    MarkP New Member

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    I have definately seen the increase in demand for rentals just by going to some of the Saturday morning open houses around the inner west area in the last few months. There would be no less than a dozen people lining up for an inspection on some two bedroom shanty, whilst the place for sale down the road was all but deserted. It fasinating how the market turns.
     
  15. kooyman

    kooyman New Member

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    cashflow versus growth argument

    Thanks to all for your comments on Hans Jakobi comments.

    No! :) I didn't but his products, his property CD's are going for $7500 special offer only for a limited time only. I do know of someone that bought his CD's for his 18 year old son and he believes it has been marvelous for his son and he is a Navra client that is why I was interested if anyone had used his products.

    I don't intend to buy them in the future. I will just have to go with the slow but sure wins the race.

    :(
     
  16. Jacque

    Jacque Team InvestEd

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    Is this post lost? :)