Property - Get in ASAP

[FishingRick04]

So true. Can't believe how many people fall for their propaganda. As if they're going to say any different.

Mate, I am a qaulified fin planner and I take offense to your comment.

I don't help my clients based on properganda I base my advice on what's best for the individual, obviously I look to earn money, but not at someones detriment.

Now when considering a plan it should look at all sources and diversification of ones portfolio. An investment portfolio completely in Direct Property IMO is bad. People should have a portfolio with Direct Property and Shares.

To say one is better than another is like saying what do you like better, white or dark chocolate? They both are the same but different. Since 1985 $10,000 reinvested in the share market would have returned $180,000 with no other contributions, that's good growth. Obviosuly sharemarkets have a high perceived value of volitilty, but the value of shares are analysed daily. Do people anylse their house price daily? I don't think so.

What I would like to see from ain investment portfolio is diversification. Fine, if you are like alot of Australians and feel secure with Property go and have a larger percentage eg 60 to 70% but you should still have a significant percentage in the share market to diversify your risk.

The Share market has tracked upwards since 1900 and conitnues to rise, the trend is there, as have housing prices, I am sure both will continue to do so over the long term.

Obviosuly is a person isn't will to invest for a 5 year period, well then they may not be giving themselves an opportunity to see the benefits of investing into the market.

But let's get away from this B?S perception all planners are crooks because, that a false and misleading statement.

Yes gearing will be happening in SMSF's and what not really.

 

[bunsen burner]

Mate, I am a qaulified fin planner and I take offense to your comment.

I don't help my clients based on properganda I base my advice on what's best for the individual, obviously I look to earn money, but not at someones detriment.

Now when considering a plan it should look at all sources and diversification of ones portfolio. An investment portfolio completely in Direct Property IMO is bad. People should have a portfolio with Direct Property and Shares.

To say one is better than another is like saying what do you like better, white or dark chocolate? They both are the same but different. Since 1985 $10,000 reinvested in the share market would have returned $180,000 with no other contributions, that's good growth. Obviosuly sharemarkets have a high perceived value of volitilty, but the value of shares are analysed daily. Do people anylse their house price daily? I don't think so.

What I would like to see from ain investment portfolio is diversification. Fine, if you are like alot of Australians and feel secure with Property go and have a larger percentage eg 60 to 70% but you should still have a significant percentage in the share market to diversify your risk.

The Share market has tracked upwards since 1900 and conitnues to rise, the trend is there, as have housing prices, I am sure both will continue to do so over the long term.

Obviosuly is a person isn't will to invest for a 5 year period, well then they may not be giving themselves an opportunity to see the benefits of investing into the market.

But let's get away from this B?S perception all planners are crooks because, that a false and misleading statement.

Yes gearing will be happening in SMSF's and what not really.

Unfortunately your in an industry full of self serving people who lok after their own interests first. Secondly there are plenty who don't know what they're doing - or not well enough to be getting paid for advice.

You need to get over it and deal with this stereotype. I've done plenty of sales during my lifetime and never had an issue with the salesperson stereotype. I'm one of the few who don't fit it, but I understand and accept it, and don't have hissy fits when someone uses the stereotype.

I'm sure you've used a policeman, lawyer, salesman, footballer, teacher, politician steretype before - so harden up.

 

[Clay Davis]

This thread's gone on far too long, and deviated from the OT, which was basically a suggestion to get into property now.

My thoughts are that this is probably a worse time in to start investing property than it has been for a while, and that an inexperienced investor should probably avoid investing in property. Same goes for most investments. There's a growing bear market globally, and I wouldn't rush in to anything.

More countries than first thought are having property corrections - some already under way before recession bites. When recession does bite - ie unemployment rises - property could correct hard around the world.

Australia could be part of this - hard to tell at this stage.

 

[tigertiger]

I agree that it is a good time to get into property but property is always a long term investment and in my case I see it as a life time investment.

If you are smart and do enough research there are lots of good buys around at the moment check out this forum if you want some real expert advice

http://www.somersoft.com/forums/index.php

 

[nokiacasio]

If you're not gearing, it's unlikely you will turn out wealthy.

What LVR do you recommend?

If more gearing makes you wealthier then you should be borrowing the maximum amount. To maximize your gearing even further you can borrow from a bank to invest in an internally geared direct property mutual fund.

If residental property always goes up in the long run and this is a law of nature then there is no reason why you cannot borrow infinite amounts to invest in residential real estate, and banks, if they too believe that property always goes up, should be willing to lend infinite amounts to property investors.

Before the sub-prime mess in America, lenders were willing to lend to home buyers, even those with bad credit histories, because of the belief that property always goes up. Even if the borrower couldn't afford to pay back the loan, money could be extracted from home equity after property prices rises.

 

[Aquamarinejewel]

Righto, a few posts have been deleted - let's keep it on topic.

 

[bunsen burner]

What LVR do you recommend?

If more gearing makes you wealthier then you should be borrowing the maximum amount. To maximize your gearing even further you can borrow from a bank to invest in an internally geared direct property mutual fund.

If residental property always goes up in the long run and this is a law of nature then there is no reason why you cannot borrow infinite amounts to invest in residential real estate, and banks, if they too believe that property always goes up, should be willing to lend infinite amounts to property investors.

Before the sub-prime mess in America, lenders were willing to lend to home buyers, even those with bad credit histories, because of the belief that property always goes up. Even if the borrower couldn't afford to pay back the loan, money could be extracted from home equity after property prices rises.

What's your point? People like you make me laugh.

 

[nokiacasio]

If you must gear, to what degree do you gear? Having $10,000 and borrowing one dollar is not going to make much difference, yet you are gearing if you borrow one dollar to add to your investment portfolio.

 

[bunsen burner]

Case by case basis and has nothing to do with this discussion.

 

[Ghostwriter]

Bunsen, do you agree that housing prices are over priced by up to 25% inAustralia as reported by the IMF?, if so what should someone do who wants to buy an investment property, wait for the fall?

 

[bunsen burner]

Bunsen, do you agree that housing prices are over priced by up to 25% inAustralia as reported by the IMF?,

Unfortunately it's not that simple. "If people are willing to pay that amount then are they really overpriced?" or, "Husing affordability is at it's lowest and compared to LOndon and NY we are expensive, so therefore we are over priced".

Can look at it from many different ways and get different answers.

if so what should someone do who wants to buy an investment property, wait for the fall?

This 30% fall that many talk about is a low percentage play. Could happen, but I seriously doubt it.

 

[Clay Davis]

The stats you showed are not not useful as they included the time prior to the great depression. Economies were run completely different then and you had long periods of deflation as well as inflation.

However, one could counter that by arguing that the easy credit of the past 10 years is the abnormal event.

 

[HighettBomber]

However, one could counter that by arguing that the easy credit of the past 10 years is the abnormal event.

I wouldn't say credit has been abnormally easy over the past 10 years, its the US that is having major issues with defaults, not us. Less than half the houses in Australia have mortgages on them by the way, but in any case if you care to read a little about macroeconomics pre WW2 you would see that, even if credit has been easy recently, this is hardly a comparable difference.

 

[SolidTiger]

I wouldn't say credit has been abnormally easy over the past 10 years, its the US that is having major issues with defaults, not us. Less than half the houses in Australia have mortgages on them by the way, but in any case if you care to read a little about macroeconomics pre WW2 you would see that, even if credit has been easy recently, this is hardly a comparable difference.

I guess that is why the Reserve bank has had so much trouble keeping inflation down. If the rate rises only affected a small percentage of people then it can only contol the spending of that portion of the economy only.

 

[Clay Davis]

I wouldn't say credit has been abnormally easy over the past 10 years, its the US that is having major issues with defaults, not us. Less than half the houses in Australia have mortgages on them by the way, but in any case if you care to read a little about macroeconomics pre WW2 you would see that, even if credit has been easy recently, this is hardly a comparable difference.

Sorry HighettBomber, but credit has been very easy in recent times. Not wishing to be disrespectful, but I think you should read up a little more on what's going on at the moment, and the history of CDOs, amongst other alphabet soups

I don't want to question the successful investors either, but I feel I must raise this point.

Real estate is fundamental to the economy. No economy can function without real estate. If real estate is doubling every 7-10 years, and GDP doubles every 15-25 years, then surely the capital gain from the land rising above its productive yield? I wouldn't expect any other asset to grow in value above its yield - so why should real estate?

As we are seeing massive unwinding around the world, I believe we'll see the same in Australia. Using empirical analysis to prove otherwise is misguided at best.

 

[HighettBomber]

Sorry HighettBomber, but credit has been very easy in recent times. Not wishing to be disrespectful, but I think you should read up a little more on what's going on at the moment, and the history of CDOs, amongst other alphabet soups

I don't have to read anything I work in the industry. Australian lenders have been conservative, the fall away in products such as no doc loans has everything to do with inability to source funds overseas (because they stuffed up) and little to do with default rates locally. But whether either one of us in correct on this point is inconsequential, it is a pimple on an elephants ass compared to the changes in the world economy post WW2. Prior to governement interference there were large peaks and troughs in economic growth and periods of significant deflation as well as deflation. There has been no deflation since WW2, this is the major reason why using price movements prior to this point is not useful.

Real estate is fundamental to the economy. No economy can function without real estate. If real estate is doubling every 7-10 years, and GDP doubles every 15-25 years, then surely the capital gain from the land rising above its productive yield? I wouldn't expect any other asset to grow in value above its yield - so why should real estate?

Residential real estate is not driven by yield, it is a mixture of human emotion and supply and demand. More people want to live in desirable areas than there are houses, while these people are employed earning good money they will continue to pay the price required to live where they wish, its as simple as that.

 

[Clay Davis]

Residential real estate is not driven by yield, it is a mixture of human emotion and supply and demand. More people want to live in desirable areas than there are houses, while these people are employed earning good money they will continue to pay the price required to live where they wish, its as simple as that.

The "yield" on a property can be more intangible qualities, such as proximity to employment, transport links, amenities, quality of surrounds, etc. They are quantifiable - they can be measured. I can't say that any aspect of Australian property has the potential to improve in these measures at the rate of doubling every 10 years, in the absence of substantial capital investment.

If the net income of a given suburb goes up around 50% every 10 years, then how does the aggregate value of that suburb's real estate double? It makes sense that it shouldn't.

Unless say, a long period of historically low interest interest rates coupled with looser lending practices stokes it?

Emotion might drive purchases, but emotion doesn't create money.

 

[HighettBomber]

If the net income of a given suburb goes up around 50% every 10 years, then how does the aggregate value of that suburb's real estate double? It makes sense that it shouldn't.

You're assuming everyone has to borrow to buy, they don't.

 

[nokiacasio]

The argument on whether to gear or not or to what degree is futile since it all depends on risk preference, which differs for each person. Modern portfolio theory backs this up.

So far in the property versus shares argument, it can be shown that during certain time periods and in certain locations property can perform poorly.

However, if these time periods and locations (e.g. before WWII and taking out America, Japan, etc) are conveniently censored then performance looks better.

However, given this freedom of censorship we can censor all other investments other than, say, Fortescue Metals and claim that the best investment is to borrow and invest all in FMG at December 2007 right before the spike in share price made Andrew Forrest the richest man in Australia.

This is backed up by historical data (look at FMG stock prices) as well as anecdotal evidence (Forrest did it). However, for the average investor this tells us nothing about the risks involved in only investing in one stock as well as the dangers of assuming that what happens in the past will continue to happen in the future.

The same arguments then cannot be used to justify sole investment in direct property. If you put all your money into one house, what if you buy in the wrong location? Just because property in Melbourne has boomed in the last 10 years, do we know it will continue?

 

[bunsen burner]

The argument on whether to gear or not or to what degree is futile since it all depends on risk preference, which differs for each person. Modern portfolio theory backs this up.

So far in the property versus shares argument, it can be shown that during certain time periods and in certain locations property can perform poorly.

However, if these time periods and locations (e.g. before WWII and taking out America, Japan, etc) are conveniently censored then performance looks better.

However, given this freedom of censorship we can censor all other investments other than, say, Fortescue Metals and claim that the best investment is to borrow and invest all in FMG at December 2007 right before the spike in share price made Andrew Forrest the richest man in Australia.

This is backed up by historical data (look at FMG stock prices) as well as anecdotal evidence (Forrest did it). However, for the average investor this tells us nothing about the risks involved in only investing in one stock as well as the dangers of assuming that what happens in the past will continue to happen in the future.

The same arguments then cannot be used to justify sole investment in direct property. If you put all your money into one house, what if you buy in the wrong location? Just because property in Melbourne has boomed in the last 10 years, do we know it will continue?

<shakes head and laughs>

Are you actually aware that property is a different asset class and therefore you analyse it differently? I can only laugh at share investors who analyse property as if they were stocks. They're not stocks and you should leave the analysis to people who understand how property works.

It's like a carpenter banging on about boiler making. They are different things with different methodologies.