Metropole/Momentum Wealth/Binvested

I attended a one on one Binvested MAP session at the end of 2014 ($299 at the time).

If you can't handle brutal honesty (bordering on being spoken down to) I wouldn't recommend a MAP session.

I was keen to go ahead however I sent a few fairly simple questions prior to handing over the buyers agency fee and some of my questions were ignored. Also the documents that were sent to me in relation to the BA fee were quite short on information e.g. there was no info on what happens if you don't proceed with a property purchase through Binvested - however in fairness to them they did answer this question later on.

The lack of response to my questions at such an early stage of the process spooked me and was ultimately the reason I decided not to go ahead.

 

I'd say "brutal honesty" to the point of being spoken down to, towards someone who pay for a professional service is unacceptable. Some tact can go a long way - honest doesn't mean rude.

 

It did leave me with a bad taste however I intially put that aside as some good points were made which saved me making some serious mistakes with the ownership structure of my current IP.

I also wouldn't be comfortable directly contacting the person who ran the MAP session as although the person was clearly knowledgeable they didn't strike me as the 'approachable' or 'happy to help' type.

 

Well for a start here is a fool proof way if you take a 10 year horizon:

1. Look to get into Perth now.....it is dropping quickly. put in cheeky offers subject to inspection and Pest & Building. The market there is dropping...I know some people putting 50-200k under. I believe the market will be primed sometime late 2016, early 2017. In another 7 years...the up cycle will begin there again. Darwin is also at the same place on the property clock.
2. Despite people protesting....that Sydney will not drop when I highlighted this...things are moving down quickly out West. With some luck and a couple of interest rates rises you should be able to pick something 2018, 2019 perhaps 30-40% under what it is today. People don't believe this...but I have observed places on the North Shore which would have sold for 1.3m in early jan 2015..now with overs over 900k and no takers. Be patient.
3. Be very careful of taking advice from people with vested interests. Plenty on this forum also. Also...ask people how many cycles they have seem. A lot have rose colored glasses....the market moves up and down with the economy. Even a so called hotter market like Brisbane has cooled off...albeit it is growing slowly. Stay out of areas like Mt Druitt/ Logan...this will end in tears if you do not time your exit.
4. Finally ask people what they have achieved......a few on this forum have only seen one cycle. The question is will they last the distance when the next financial crisis comes around.....

 

What is the reasoning behind staying out of Mt Druitt/Logan? I have been looking at lower socio-economic areas in Brisbane to increase yield/CF.

 

If you want to build a large portfolio use the balanced approach. Target areas that are undervalued but also give both CG and CF. That would mean areas that have the potential to grow 5-7% per annum consistently...and have 5-6% yield.

You can also manufacture growth by doing cosmetic renos by buying run down properties.

Mt Druitt worked fine up until now...what happens when the market slows. If you did not get the equity out early enough good luck releasing it now......as I have said before...I can see houses being sold there again at low 3s again at some point. Maybe even lower. Unlikely to happen in more middle class suburbs like Penrith...Jamiestown...etc.

 

Do you think this includes SW Sydney (Liverpool and surrounds). Can still get units under $400k with 5-7% consistent growth. But think they too will take a hit?

 

Liverpool has a huge pipeline of unit supply...do oyu think 5-7% continual growth for the next 7 years is sustainable.

Lets do the math if you have a 400k unit now....using the rule of 72 which says if you divide the percentage growth into 72 it gives you the time it take to double. So if you use a 6% growth rate it will take 12 years to double. That means in 6 years...a 2 brm unit in Liverpool will be worth 600k...can't see this as we are at the end of the Sydney cycle...it will do nothing for about another 7-10 years or so.

 

Ok that sounds logical. But nothing, or just a reduction to the low CG % to more like 2-3%?

 

Maybe...but typically the market in these suburbs come off by 30% ...so 2-3% will not get back to the peak again....

 

Not quite. 6% growth over 6 years will equate to a 42% rise, so prices in Liverpool would be approaching $570K.

OK, @sash's figure is pretty close...

I'm going to be a doom and gloomer here. Sorry, it's in my nature.

If you look at long term studies of house prices, such as those done by Robert Shiller, then over the very long term they roughly track wage growth, which in turn runs a little bit above inflation.

Or to put it another way, Sydney's recent boom accounted for nearly 13 to 14 years of growth over a two to three year period. So a best case scenario would be flat prices over the next decade.

I'm willing to bet that none of these investment companies run projections as pessimistic as I've just outlined. Instead there'll be figures showing seven to ten percent growth until the end of time, and who cares if you're negatively geared if you're gaining that much equity?

All the companies are pulling out $10K plus per property you buy as a risk free fee, with minimal costs to them. (Seriously, how hard and time consuming is it to find and negotiate on a property?) Plus, no doubt, there'll be commission on the brokerage of the recommended mortgage. There are probably a whole bunch of clauses to protect them if the investment turns sour.

So perhaps the question to ask is can these companies deliver more than $10K or $20K in benefits to justify their fees? As others have said, most of the information you need can be found on Property Chat or Somersoft, and a buyer's agent might help with negotiations.

Oh, and as with @Ace in the Hole, I think that the BInvensted business model smells funny.

 

@Graeme mate Do you honestly believe that this is the likely outcome for all of Sydney dwelling prices over the next decade? ? Forget about all the economic mumbo jumbo pundits put out for a second. Do you think realistically that's what is likely to happen?

 

Leo... a good application of critical thinking right here.
@Graeme, thanks for your post... agree the companies won't show pessimistic projections... absolutely vested interests... gotta turn on the bs detector and be prepared to walk away from any sales spiel because that's what it is, simply a sales spiel to get your money... there's no guarantees of any investment performance and the result could be a huge error ending in tears or worse....

 

It just boggles my mind that any investor could believe that all of Sydney prices at best will remain flat over the next decade. Of course anything is possible and no one has a crystal ball, but we gotta look at what is more likely to happen than not. Just my opinion.

 

Yeah... well, i'm willing to say a possibility is flat prices in Sydney over the next decade... (though I think it's highly unlikely unless some major disruptive events worse than Brisbane flooding happens in Sydney)...

but saying "best case"... no way Jose... I'd still put my money on another doubling. People still want to live here, buy here, be here...

 

A possibility? Absolutely agree. Anything really is possible. But as you said 'highly unlikely' which is my long term view as well. The long term demand is just too high for all of sydney prices to remain flat over the next decade in my opinion.

Putting that aside, personally i believe being able to add value is the other essential key really

 

Depends if @Graeme is talking about a scenario where there is 10% correction, then 5% growth, then a static year, then another 5% growth, then a 5% drop, then a static year then.....

Its possible to have a 10 yr 'flat' market if you average out the dips and hills. If Sydney has a correction at any stage from this high boom it may well take 10yrs to get back to this stage.

I'm not a Sydney expert though - just pointing out 'how' it might happen. I would doubt that it would take 10yrs to get back to this level - normally I would see a CBD recover from a correction in 5yrs but it all depends on how bad the correction is because it's hard to model accurately over a whole CBD. In Perth it's always the higher $2m bracket that gets hit the hardest and take the longest to recover.

 

I can see how a 10% correction followed by some growth, then a static period followed by growth etc could long term be a 'flat market. But my problem is that they were talking about Sydney as in 1 market, and not many markets often doing different things at different times as you know. Also if you are able to buy when there is a correction, add value and on sell there is always the possibility of making profit. I agree the prestige market usualy gets hit the worst and the longest so i can understand that market having an extended period of flattness. I just personally dont see Sydney, all markets, being flat after 10 years. I also dont see that there are no profits to be made in any market over the next 10 years in Sydney.

 

My projection was based on the following:

• Inflation looks set to remain low (say 3% or so) for the foreseeable future. The world economy seems to be flirting with deflation more than hyperinflation these days. If property prices are linked to wages then I'd expect growth to remain low. That's what Shiller's research found.
• Given the above, and the fact that the median wage in Sydney is around $60K, then I'd expect it to rise to $80K in 2015. (Or if you want averages, it'll go from $75K to around $100K.)
• Prices in Sydney have risen ahead of wages for much of the last fifteen to twenty years. In 1995 the median house was around $200K, versus about a million now. Wages have almost doubled in that period, so housing is nearly three times as expensive as it was back then. So it's not a cheap market in historical terms.

Plus:

• There are regulations being brought in to curb risky bank lending, both locally (APRA) and internationally (Basel III and IV). These will probably reduce the amount of credit available.
• The ATO has been cracking down on foreign buyers how are non-compliant with local laws. This may restrict the flows of capital entering the country.

A prolonged long slump is possible. That's what happened between 2003 and 2010 or 2011. In real terms that would mean a 2025 Sydney property would cost about as much as it did in middle / late 2014. So not cheap, but more affordable than it is now.

If prices doubled over the next decade then you'd be looking at a median house price of $2 million, against a median income of $80K (or mean of $100K). That's possibly above the peak of the Tokyo bubble in 1989.

I'm not sure that an investment strategy based on a once-in-a-generation event is that sensible.

If regulations get wound back, or we have a period of high inflation then my projections could be proven wrong. For example, if it hit the level seen during the late seventies then wages couple triple over the next decade. If house prices doubled under that scenario then they'd still be (in nominal terms) cheaper than now.

 

Ta @Graeme. However I wouldn't discount rising wealth in Asia, with its huge population. Even if a small percentage of them decide to invest in Australia, with Sydney and Melbourne being the 2 major capitals they will invest in.... Sydney is, or is becoming an international city. Money will flow in from externally, not just the current population base.