Does Property Build Wealth?

OK, just don't buy in Perth please, some will say there are bargains to be had today, I say you will lose money tomorrow.

MTR

 

@Allgood , all good mate

Just try to avoid the major traps, tricks and obvious bad buys and that should save you a lot of time and money too mate.

Cheers

 

Guess I was just pointing out how, in my opinion, I hope buying and holding LONG term will work for me. Not simply throwing a dart at a map and buying there, or buying somewhere because everyone else is or has. We've all seen how that ends.

 

a property i know of in a posh perth suburb that was bought in the mid $1m a few months ago and settled in jan got a cash unconditional offer in high $1m 2 weeks ago. owner said no but offer was 30% more than purchase price.

someone else i know got a serious enquiry (but not as solid as the above) for a property that they bought mid last year for mid $2m. the enquiry was at mid $3m and less than $200k was spent doing the place up.

these are both properties i was heavily involved in and can vouch for the figures. there are some outstanding bargains in perth atm

 

Which ETF's do you like, and why?

 

Well it really depends on what you're trying to achieve, but personally my two preferred ETFs are Vanguard VAS - Vanguard All world Excluding US & VEU Vanguard U.S. Total Market Shares for the following reasons:

• I'm young-ish, so i'm after long term capital growth, relatively high risk tolerance (but still with a ******** of diversification)
• I'm already heavily exposed to the Australian market directly property / indirectly via the loans on those properties to the banking sector, which is tied into everything else in Aus.
  
• Fairly low fees. VEU is 0.13%, VTS is 0.05% (which is why I don't just go all in on a world fund)
• USA is currently my most common travel destination VTS isn't hedged to AUD so its sort of a personal hedge against travel cost

 

All very good points, but ultimately I think its even simpler than that.

That graph above corresponds pretty much precisely with credit expansion and contraction.

Banking deregulation - late 80's - led to much much more competition, and allowed the banks to leverage to far greater levels by holding far less capital per $ borrowed o/seas.
Which led to... competition - This is exactly when Aussie, RAMS, Wizard, Mortgage Choice etc started up and Australian consumers had real choice for the first time ever...
Which was fueled by a securitisation explosion - which made more money available to Australian lenders ( banks and non banks, and therefore consumers) than ever before. The credit purge began right here.
Which led to ... pretty much ever falling rates ( except for a few minor short term hiccups, we have had almost uniterrupted rate declines for almost 3 decades.) This is about where "The Big Short" makes handy viewing

Then came LMI, which led to .... ever expanding LVR's, so purchasing power increased yet again..
Then came ..... improved servicing calcs... neg gearing, add backs, o/t, actuals etc... every dollar of capacity was being squeezed out of the calculators...
Then came double income households...
Then came Howerd era middle class welfare handouts...
Then came foreign investment ....

Each ripple fed into the next ripple.... all driving capacity up, the cost of credit down, and all made possible by the credit environment ...

It's just so obvious . Each dip or plateau on the graph above corresponds with a rate rise... and each increase on the graph above corresponds with a rate cut, or series of rate cuts. Overwhelmingly, the trend has been UP as the credit environment just expanded and expanded...

But like happens to all things eventually, the elasticity has been fully exhausted and now, for the first time since the late 80's /early 90's, we are entering a regulated, rather than deregulated lending environment.
We are seeing a slow down in household incomes
LVR's have topped out or have been curtailed by some lenders , and there is NO capacity for any material expansion to existing LVR's
Rate cuts are fairly well exhausted... there is a little bit of petrol left in the tank but for the first time , rate cuts only assist affordability, but they do NOT aid borrowing power at the majority of lenders.
Servicing Calcs have been tightened
HEM's have been introduced

Is it any surprise there is now a deceleration of growth?

 

Upgrading primary residence blue chip is a different story, agree.

 

Hey @MTR, you have done well with jumping in at the correct times and riding the waves. I know you have mentioned several times you are, and have been selling off. Are there any states/locations you believe are heating up?

 

I am not buying in Australia at the moment, don't feel comfortable jumping in anywhere at the moment.

Brisbane? perhaps?? but I have not been interested in this market, though I think some will do well with the right areas, and perhaps being able to find scarce deve sites?? . There are plenty of threads on this, comes down to actually phoning agents in specific areas and working exactly what is happening in terms of days on market, volume et.

US is my focus at the moment and networking with a couple of successful investors in US, they call houses "doors" in US. The US economy is already into its eighth year of economic expansion. The labour market has been improving for a long time now. So it’s hard to argue there is a lot more upside to come.

Happy investing

MTR

 

I spent 3 years living in the US, and was just there for a few weeks where I met with a dozen brokers and agents, and Ive never heard the term "doors"

 

investors do, go to biggerpockets forum

 

strange... had never heard that phrase

 

heard this first time about 3 years ago.

what I find amazing is I know a US investor who owns over 100 doors, but houses are cheap as chips in many US States compared to Oz, still blows me away.

 

Depends which market...houses in LA, San Francisco/Bay Area, Boston, New York, Washington DC & Virgina Suburbs are not cheap and have prices similar to Sydney/Melbourne or more. They have not moved down as much

The other states like Texas, Georgia, Alabama, Oklahoma, Memphis, St Louis, Kansas City, and Indianapolis homes are relatively cheap

 

Getting a straight answer out of someone on how to obtain finance is the greater mystery. Its a state by state, broker by broker proposition.

You could ask any broker here and they'd very likely be able to point you to the FIRB and a non resident lending policy. The US brokers know diddly about any of this stuff.... its a completely foreign ( excuse the pun) concept.... just like offset accounts are

 

Its a totally different beast, nothing is at all simple, ie bank systems, IRS etc etc.

In terms of working through it I believe its no different to Australia as far as networking goes, network with successful people who have a track record and you have a better than average chance of making money, network with the wrong people and you have a good chance of losing money.

 

Hmmm...I think I heard this one before....in reference to how you can keep borrowing money.

I guess you have to know WHO to approach.....

Euro73 .... its actually like NRAS..not many people know about....but when they approach you they know the bees knees. Is that a fair comparison?

 

Depends on what you are looking for. I am inspecting a property tonight in Perth I am very interested in. I am highly likely to put in an offer. Numbers stack up for what I want to do, so why not?

 

Perhaps at a very simplistic level... but at a more nuanced level, I wouldnt agree at all.

Consider for a moment how poorly understood NRAS had been by most here. I spent a significant amount of time and energy sharing information widely on NRAS and finance and banking etc - in great detail - without exception- repeatedly. Now consider how well educated anyone who wants to do some reading, can be on NRAS, on everything from lenders to NRAS consortiums, to fee structures and everything in between. Then there's the detailed information I have been happy to share around how mortgage funding really works, how lenders raise debt , what securitisation is, and the real drivers behind the regulatory intervention. Again, those who have read the posts would find themselves far better informed than they were before.

Let's compare that with peoples queries on investing in resi security in the USA . Most on here who purport to be experienced in the process have done little or nothing other than to share cryptic information that really adds no value - they like to talk about having done it, but they don't really ever share HOW to do it. There has been a complete unwillingness by any forum members to share a detailed step by step guide on how to do business in the USA, from practical advice on how to establish an LLC and appoint non voting US citizen members to the LLC so bank accounts can be opened, to recommendations of brokers to contact for lending, and everything in between.

That would be where the difference lies.... a little thing called "detail"