Property Investing Tips in a Changing Market..

Discussion in 'Property Market Economics' started by sash, 11th Aug, 2018.

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  1. sash

    sash Well-Known Member

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    Well obviously you know what you are doin' then.....are you a workin' gal/guy then? :p
     
  2. icic

    icic Well-Known Member

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    When that was happening, Japan already reached the limit of development so the population could not be stretched too much further in productivity. China still have much growth to go economically to reach where Japan was in the 90s. Some have argued that China might run into a middle income trap similar to Brazil, Chile and Malaysia, but I think their transition from low tech low wage work force to a high tech economy is happening quite rapidly with now produces many leading companies in various industries so I petty much doubt that is going to any prolong recession if a crash does eventuate.
     
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  3. Illusivedreams

    Illusivedreams Well-Known Member

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  4. Illusivedreams

    Illusivedreams Well-Known Member

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    Japan v China
    Extract from above link

    By 1989, a modest, 75 sq metre apartment a 90-minute commute from central Tokyo cost 8.5 times the average white-collar salary. Three decades later China is witnessing an even more dramatic dynamic at play in its capital. The average cost of a 100 sq metre apartment in Beijing is Rmb5m — or more than 50 times the average annual income of local residents.
     
  5. sash

    sash Well-Known Member

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    That would only come to grief...I feel a lot of Chinese have no idea what will happen when that bubble pops...it is going to be super painful. You will never see that get to this point in NZ, Australia, Canada or the UK. There seems to be resistance once the median of an unit/houses is more than 11-12.5 times average income. Average income is now about 80k in Sydney and about 75k in Melbourne so to topline for median price is about about $1m in Sydney and 900k in Melbourne. That barrier has been breached in Sydney.

    So what happens is that average salaries will continue to go up but median house prices stagnate till wages catch-up. So in about 7 years the average Sydney salary will be about 100k assuming a 3.5% inflation rate. That means 110k will be the median income. So then the median will become about 1.3m and prices will move again....
     
  6. wooster

    wooster Well-Known Member

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    Guys, can we stop the JP vs China, and go back to the tips?
     
  7. euro73

    euro73 Well-Known Member Business Member

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    TIP #1 - 101 = Cash Cows Rule in the post APRA era

    When you have more money coming in than going out, you are well placed to deal with trouble.

    More specifically ...

    When you have sufficient cash flow during the period your property is running under IO to pay down some debt, you are building some very handy buffers against future changes to circumstances - whether they are injury, illness, incapacity, redundancy, reduction of income or increased interest rates

    When you have sufficient cash flow to pay P&I relatively comfortably at the end of an IO term without needing to dip into your own pockets to the tune of thousands and thousands of dollars each year you are also at less risk of losing the portfolio you have worked hard to build.

    See it's not just about purchasing power. Debt reduction is obviously helpful in that regard, especially where the debt reduction is focused on non income producing, non deductible debt - ie your PPOR mortgage. But it's also about holding power. Every investor reading this should simply assume they have to run whatever portfolio they are building, under P&I terms, one way or another - eventually. Might be in 5 years, might be in 10 years, might be in 3 months time..... however long away it is... it should be modeled as the cost base under which your portfolio will operate - That alone should illuminate the value of stronger yield (cash flow) pretty clearly .

    cash cow 4.jpeg Pay-Off-Debt-Button-691x691.jpg P&I cliff.png einstein .jpg
     
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  8. sash

    sash Well-Known Member

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  9. Bris developer

    Bris developer Well-Known Member

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    A good option to still access good rates, IO loans, high LVRs etc is to get on board with Private banking although u do need to be able to bring at least $2-2.5m of borrowings on board

    Eg. Westpac Private are still doing SMSF lending whereas westpac retail has stopped.

    I had trouble getting a refinance done due to servicing concerns. I badgered them and finally got a meeting with the director and the credit honchos and it was pushed through. It seems more relationship based for sure

    Also my theory unsure if it’s correct or not ... they are not paying any broker commission as it’s direct and they seem to value the business more...
     
  10. sash

    sash Well-Known Member

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    Thanks for the tip ...I do have over $2m with We-suck.....
     
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  11. Bris developer

    Bris developer Well-Known Member

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    If u need a contact or intro sash let me know... bris and syd westpac teams are both great. U will like the free Barangaroo car parking too I am sure
     
  12. euro73

    euro73 Well-Known Member Business Member

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    If only you were right once in a while.



    This is completely speculative. What's plan B after 5 years if your loan repayments jump 50% and the growth of 60% - 100% that you have assumed, doesn't occur?

    5-5.5% isn't balanced yield. It's barely entry level yield. P&I repayments on 4% will become the equivalent of 6% IO repayments. (50% increase) . P&I repayments on 4.5% ( more realistic than 4% ) will become the equivalent of nearly 7% - so you really need 7% yields or better just to stay afloat. And as we all know you need yields of 10% to be "neutral" on a lander servicing calc - and thats only "if" they will accept 10%. Most will cap allowable rental income at 6% .

    Your strategy assumes so many things that just aren't realstic. They are assumptions that someone in your position can work with, as you've already made your money and have owned property long enough for your yields to have matured.... but they just arent safe for post APRA investors mate. You are pitching dangerous and speculative strategies that rely on .

    1. Growth Cycles still being a reliable and predictable thing.

    2. Constantly picking winners that will deliver 60-100% growth in 5 years.

    3. being able to borrow on IO terms to manage the holding costs for those 5 years

    4. being able to sell at 60-100% profits every 5 years or so

    5. doing it again, and again, and again....

    Lots of assumptions there... and none of them remotely close to being certainties ....
     
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  13. sash

    sash Well-Known Member

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    Lets agree to disagree...the fundamentals remain the same.

    Quality property over the longer term bought well returns CG. Using the balanced strategy you can still get up to 4-5 places.... lots already doin' this.

    I have no vested interests in this..do you?

     
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  14. wooster

    wooster Well-Known Member

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    Do you have some examples of the cashcow you are talking about?
    what were their return and price on purchase, and what is the return base on the original price after 5 years?
    What type of properties are they?


     
  15. euro73

    euro73 Well-Known Member Business Member

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    Of course I do. I'm a business member....are you?

    Conveniently , predictably, and absolutely unsurprisingly - no response to the Plan B question...
     
    Last edited: 17th Aug, 2018
  16. sash

    sash Well-Known Member

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    Nope ...I am mere minnow...in a big pond....I knoz nutin'...I sez nutin'...and hearz nutin' ...her commandant.
     
  17. euro73

    euro73 Well-Known Member Business Member

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    Dual Occ's. Orange NSW. Typically 570-580K.
    4 bedroom homes + 1 bedroom granny flats returning $675 per week.
    Brand new builds also generating significant depreciation.
    They run @ neutral under P&I conditions, or they run @ 8-9K CF+ under IO conditions.

    Either way, they produce more cash flow and far more safety against P&I repayments than a 570 or 580K property purchased in a supposedly high growth area ( I mean, what is that anyway? ) which might give you $450-500 per week at best. Good luck not having to pour thousands into that when your holding costs blow out after 5 years... all the growth in the world wont help pay that extra 7,8,9K per year. All that achieves is to divert 7,8,9K away from PPOR repayments... so not only are you totally reliant on big growth to come ojut on top, your PPOR mortgage isnt getting repaid any faster.... which only damages future borrowing capacity

    Vacancy Rates in Orange are now only 1.1%, so the yields aren't going anywhere but UP , especially when you consider what's coming.....

    700+ new jobs coming from the department of Primary Industries relocation to Orange in 2019
    200+ new jobs coming from the new gold mine opening at Blayney (10 minutes from Orange)
    200+ new jobs coming from the new wing of the private hospital
    New medical school opening at Charles Sturt University in 2021

    These people are going to bring partners and children with them.... and when you consider that net migration increases of @ 1% per annum are already happening even before the new jobs happen, connect the dots. Public Service jobs+Mining jobs+Medical jobs+ hundreds of other people moving to Orange = ????

    I think its a pretty safe bet the answer is growth + yield.

    Now, the nasyayers here - @sash @Anthony Brew in particular, will tell you you cant get good results from CF+ regionals. They'll tell you that I'm selling properties in the middle of nowhere and locking peoples equity up for life. I guess 10+% growth in 12 months, and 8% rental growth in 12 months proves them right...... right ????? :)

    I am always , always , always happy to put real evidence of real deals , purchased by real people ( including multiple PC members) who do real tax returns and get real results in their bank accounts and make real extra repayments and real inroads into their debt, up against the unreal and unrealistic things these guys talk about. Always! :)

    As I said before...this is the method I choose to work with. But if you already own suitable properties in NSW where the land allows for it, you may be able to achieve dual occ by adding a granny flat for example, or you may prefer a commercial approach in order to generate some extra yield. The particular vehicle of choice for generating cash flow is your prerogative. But the thread asks about tips for a changing market - and I stand very firmly behind my views that cash flow and debt reduction are THE tips.... however you go about achieving them.
     
    Last edited: 17th Aug, 2018
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  18. icic

    icic Well-Known Member

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    Great explanation there @euro73, one thing that I am not sure is how the price drop in Sydney and surrounding areas could eventually affect Orange. I know that they are distance far apart, but the psychological effect will still be there and that might potentially stop the growth on its track later. Anyone can recall their experiences on what happen to the Orange or similar regional towns after last boom back in 2003? I was too young back then.
     
  19. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Typically WBC private ( like most lenders) the rates are service oriented, rather than value - they provide solutions, not price.

    The deals we have seen approved have often been cleatly outside of retail policy, especially in the expat space and in some cases clearly outside of APG 223.


    ta

    rolf
     
  20. euro73

    euro73 Well-Known Member Business Member

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    It's not really all that relevant what happened in 2003, so comparisons arent helpful.... Whats relevant is that this is the post APRA era and growth cycles of the past are now redundant. Holding costs of the past are now redundant.

    Anyone seeking to grow and hold a portfolio will face real difficulties with growth being the only strategy...

    Firstly, its unlikely growth will happen at the same levels that happened in the past anyway - due to fewer people being able to borrow less money...

    Secondly, its then a question of holding onto a portfolio where the repayments will increase significantly when the loans revert to P&I.

    These two changes are things that never needed to be considered in the pre APRA era. They are now the two most important considerations, given the changes to lending.

    As it stands right now, you need to be able to get in and out and make a large profit within 5 years, before your IO runs out...or you face potentially serious cash flow issues. Thats an awfully big punt to take... we didnt see 5 year cycles in the pre APRA era. Im not sure how anyone can reliably predict or pick them in a post APRA era...?

    Regarding Orange - I don't own 3 properties in Orange and sell dual occ properties in Orange because its going to grow 10%,50%,100%, or any other %. That is speculating

    I own and sell properties in Orange because they are affordable, because I can hold several and stay under the NSW land tax threshold, and because they pump out returns that allow me to pay down debt or hold under P&I conditions. That is investing

    What is important to me is that the yields stay strong. To that end, Orange appeals to me because we are seeing consistent net migration. and lots of high paying job migration It's not happening in massive volumes, but regionals of 40,000 or 45,000 only need a few hundred people a year moving in to drive things along nicely.... 1% population growth is all it takes.

    We are at the beginning of a new trend, as the slow and steady relocation of wealth to larger, well serviced regionals by treechangers, starts. These treechangers are cashing out in big cities, downsizing and pocketing a lot of cash ( some of which can now go into super - 300K per adult) as they seek simpler, less congested lifestyles.

    It's also certainly helpful that we are seeing increasing numbers of young families relocating to larger, well serviced regionals as well, due to affordability constraints in bigger cities

    And its also very helpful that large amounts of jobs are headed to larger well serviced regionals ....

    These things combine to ensure that 1% population growth ( or more) stays consistent, and it ensures vacancy rates remain low, underpinning my yields... and yes, potentially driving some growth as well... which is really nice, but not the main game. I don't NEED the growth. I want is yes, but I dont NEED it. I only NEED the cash flow so I can pay down the properties and be left with unencumbered assets generating strong incomes in 15-20 years time..... The growth is the cherry on top...but it doesnt improve my income stream at all.

    I am Investing. Not Speculating. Not in this post APRA era.

    There are several PC members who own dual occ's in Orange... maybe ask them whether their investments have been a positive experience? .....
     
    Last edited: 17th Aug, 2018
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