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Share shakes: what about your home?

Discussion in 'Real Estate' started by 02bsure, 1st Oct, 2008.

  1. 02bsure

    02bsure Well-Known Member

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    Share shakes: what about your home? - National - smh.com.au


    "We've long said that we think we are in for a period over the next 12 months where house prices will be flat and a little bit weakened, and that we are in for a 12 months where the amount of home building we do is going to fall," Mr Dale said.


    "We predict in some markets in Australia [such as Sydney and Western Australia] falls of 5 to 10 per cent [in the next six to 12 months]."


    BUT REST ASSURED ...Mr Dale went on to say ...

    House prices had fallen as much as 40 per cent in the US and up to 20 per cent in Britain, but this would not be repeated here, Mr Dale said.


    Now, who is Mr Dale? Oh thats right hes the Housing Industry Association chief economist.

    So take note, if the economist shill for the housing industry is warning of house price falls then its going to be serious....no make that plain ugly.

    So the status thus far is :-

    - 2008 : 7% house price inflation washout
    - 2009 : predicted to be 7% house price inflation washout - down 5 to 10%

    How long will the ip battlers continue to feed their real estate investment alligators?

    Remember what Warren Buffet says : when you're in a hole, stop digging.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Do you actually own any real estate in Australia 02bsure ?
     
  3. voigtstr

    voigtstr Well-Known Member

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    The value of my houses wont be going down this year, because I wont be valueing them. Only when the the houses in the area are shown to be going up in value (by recent sales figures) and pulling equity would yield >20K would I bother about getting our houses valued. Its not like the sharemarket where your shares (or funds) are valued every day.
     
  4. 02bsure

    02bsure Well-Known Member

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    Hi Sim, no I don't own any real estate in Oz.

    But I have a fascination with the mentality that exists during what I consider to be the biggest bubble that currently exists on this planet. ...namely ozzie real estate.

    I've lived and worked in 6 countries and learnt a lot about many aspects of people, their mentality, laws, values and behaviour.

    I think the phrase -

    'people go crazy in herds but regain their sanity individually'

    speaks volumes to what I believe to be the current situation.
     
    Last edited by a moderator: 1st Oct, 2008
  5. Young Gun

    Young Gun Guest

    so what your saying is, that as a property investor you can stick your head in the sand as long as you dont get your property valued.
     
  6. voigtstr

    voigtstr Well-Known Member

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    The market will do what it wants, I've got no control over it. I wont be sticking my head in the sand, my wife is always checking the value of real estate in the areas we are comfortable with. When there is equity to harvest, I'll harvest it. If its flat for a bit, no loss, and if interest rates are going down, even better, the ip will be closer to cash flow positive. Why do people have to take the negativity of the current market on board so much?:(
     
  7. Billv

    Billv Getting there

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    O2

    It's a free country and people are entitled to their views.

    For your information, despite all the D&G from the media, yourself etc, property still sells and the reason is really simple.

    People buy because they want somewhere to live.
    Renting has it's benefits but it also has it's disadvantages.

    Cheers
     
  8. voigtstr

    voigtstr Well-Known Member

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    also O2bscure, whats your suggestion, if the market is slow for a while, sell up and miss out on all future potential growth?
     
  9. 02bsure

    02bsure Well-Known Member

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    Voigstr, I think thats a loaded question. You seem sold on the belief that there is 'future potential growth'. I tend to believe you're right, its just that imo growth won't be seen for at least a decade.

    1. Growth is dead (read capital gain).
    2. Yield is king (read as cash flow positive return on investment).

    Anything that falls into 1. should be avoided and anythnig that falls into
    2. that does not depend on leverage or has large debt connected to it should be considered....but very selectively.

    If for instance you had simply

    1. sold your ip on 01.01.2008 you would be further ahead today
    2. if you had parked your winnings in a deposit account you would be even further ahead than you are today.
    3. if you had parked your winnings in a deposit account in another major currency on 01.01.2008 , you would be even further ahead today than option 2.

    The above was all I suggested to do in late 2007. The same applies today.

    No one is going to front up with 'a box full of credit and a bag full of stupid' large enough to pay you what it is you expect to receive for holding your CF- investment.
     
    Last edited by a moderator: 1st Oct, 2008
  10. 02bsure

    02bsure Well-Known Member

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    Bill, a home is a place where you feel you're comfortable. Regardless of whether its bought or rented. You phrase it its as though you either own or you live under a old sheet of corregated iron or under a bridge.

    Right now, you're making more money by renting than owning. So if saving money or becoming more finanically secure is the goal then renting is the answer.

    Theres a lot more to life than being allowed to paint the walls a different colour.

    Furthermore, D&G is to see property prices continue to climb but that is of course simply a question of perspective.
     
  11. voigtstr

    voigtstr Well-Known Member

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    If property prices continue to climb, there will be continuing demand for rentals. More demand (and increasingly limited supply) will continue to push rents up. Interest rate cuts and increasing rents will narrow the negative gearing gap. Add to this that all the time I'm holding this property (got the keys to it last friday by the way), inflation which is on the rise, is lowering the value of the loan for me over time. My personal view is that our property market is a world away from whats happening in the U.S.. and does not deserve such negative sentiment. It may be more expensive to buy now (because the banks are not offering the high LVR's they were previously) but once you do buy, all the factors above are working in your favour. The market I'm investing in (Hobart) doesn's seem to have negative growth like Sydney or Melbourne suburbs sometimes experience.
     
  12. 02bsure

    02bsure Well-Known Member

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    My position on this is really simple -

    Does it generate cash?

    That is to say, does the rent cover all expenses and an amoritized loan?

    If it doesn't, then you are losing money every month. You could alternatively be making money every month by putting the deposit in a term account. Sure, you are still losing to inflation but to a far lesser extent than buy buying a negative cash flow property which is very likely to drop in value.

    Anyone who ignores stagnant wage growth but believes in healthy house price inflation is making a bad mis-judgement. The latter cannot be sustained without the former.
     
    Last edited by a moderator: 1st Oct, 2008
  13. voigtstr

    voigtstr Well-Known Member

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    Before tax, if interest rates drop to 5.7 then its cash flow positive. I'd have to wait on a pending depreciation schedule to see how that effects things.
     
  14. 02bsure

    02bsure Well-Known Member

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    Ok, but I have to say, theres a stark anomaly in your logic.

    You need lower interest rates and at the same time you want high inflation.

    If inflation remains high then the RBA will have to raise rates and vica versa.
     
  15. dudek

    dudek Well-Known Member

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    Both of you have a valid point but let me share my point of view. To make money you have to spend money. Even if you run positive gearing there is always cost associated with making money. You pay for share transactions, you pay to keep your money in super fund, you pay to keep any investment portfolio. I am not very cleaver with giving someone money to get some cut out of it that is why I like bricks. I have portfolio of 2 IP worth 650K. Last year after tax return I was out of my packet 5k in 12 months. How much would it cost you in admin fees to keep the same amount of investment in managed funds or super? Is 5k per year that much to secure your 2 properties knowing that you can bit super and retire in 30 years ?
     
  16. Thudd

    Thudd Well-Known Member

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    dudek has an interesting point. When I look at what I paid in fees in my super this year and compare it to the projected holding costs of the IP I've just acquired, they're similar. And I know which one is currently worth more....

    And for good measure, within 5 years the IP will be cashflow positive. If there is capital growth in the short term then it doesn't have to be very much at all and even my negative cashflow is outweighed by the increase in equity. Long term capital growth and I'm laughing.

    So while I certainly take on board 02's point that it's possible to make extremely poor property investment choices right now, I would argue that it is also possible to make good ones. Short of the economy dying so badly that even the shoebox money under the bed becomes worthless then I'm not so pessimistic.
     
  17. AsxBroker

    AsxBroker Well-Known Member

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    Hi DudeK,

    I have client's that are not paying any fees in super. Admittedly they are invested purely in cash, so their returns are just over 6% pa.

    Cheapest Managed Funds I know of would be Vanguard which is 0.34% pa for wholesale (which at $650k you wouldn't have any issues accessing). $650k x 0.34% pa = $2,210 pa

    Cheers,

    Dan

    PS Before making an investment decision speak to an FPA registered Financial Planner.

     
  18. AsxBroker

    AsxBroker Well-Known Member

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    Hi Thudd,

    Superannuation is a tax structure not an asset class.

    With the newer superannuation legislation you can borrow within your super fund and buy an investment property. Down the track you can legally avoid paying capital gains tax (how cool is that?).

    It's easy to make poor investment choices across all asset classes (property, shares, fixed interest and cash). If your looking for long term investments now is a great time if you can buy the assets.

    Cheers,

    Dan


     
  19. Billv

    Billv Getting there

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    O2bsure

    Are you following the news?
    The official interest rate went down by 1% yesterday and the banks are passing 0.8% to their borrowers.

    Cheers
     
  20. carlosreynolds

    carlosreynolds Active Member

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    What about the second part BV? The inflation rate is running at 4.5% - not exactly low. Will the most recent rate cut put upward or downward pressure on inflation?

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