Property Investing Tips in a Changing Market..

My eyes and brain hurts from reading your post. ...brevity is an art...answer is still the same...

What happens when the regionals stop growing? Orange and others had a very long period of stagnation.....these areas are not like Newcastle, Gold Coast, Geelong, Wollongong, Sunshine Coast, Central Coast which are tied to major cities.....dems what to thunk about.....

 

Hey @sash, general comment not related to the thread or anything but I really think this picture would be good as your profile picture. I think it suits you. It's a compliment.

 

Very fitting I agree.....see .....my response.....haa...haa..aaahhhaaa.........

 

You don't read very well... I'm investing for cash flow and debt reduction, not for growth. Seems I can say it 100 different ways and it still doesn't register with you.

I'm only concerned with whether my rents are sustainable, so I can own unencumbered properties with handsome incomes - and with 1.1% vacancy rates and 1% population growth and very limited land available for subdivision, and lots of high paying jobs headed there in the next 2-3 years I like my chances. A LOT

You are an advocate of speculation. That's fine. You have the salary, the mature portfolio and the yield ( built over 15+ years of pre APRA generosity ) to be able to afford that . You also have very different financial responsibilities than most readers here with partners and dependent children and PPOR's with mortgages.

I advocate investment - or dividend reinvestment more specifically. I am a realist about the new credit era. I work with investors who are faced with higher holding costs and lower borrowing power and reduced IO access - investors who haven't had the benefit of pre APRA servicing calcs, cash out policies, nor 15 + years of rental maturity using 15+ years of IO

@sash..if you had been required to move to P&I on each and every one of your properties after 5 years, would you be singing from the same song sheet?

@ sash if you had been restricted to borrowing half (or less) of what you have been able to borrow, would you be singing from the same song sheet?

Would your portfolio look anything like what it looks like today under those 2 changed conditions?

ME "THUNKS" NOT

 

My personal believe is as an experienced property investor, we do want the cherry on top as well. Without the cherry, that’s very not exciting.

Use Orange as an example, since the fundamentals are there I.e. population growth that is consist of high pay professionals. I am confident you are going to get the cherry as well.

 

Yes. I am too... but its still more important to me that I have a strategy that works in the event of low or no growth. I have to accept the new credit environment is the new normal, and I have to accept there is a strong probability that future growth cycles will be materially affected by the new normal. That's why I use cash cows and dividend reinvestment. Safe with or without growth. safe with or without IO or P&I.

Not very exciting - I agree. But who cares about exciting? Exciting doesn't get me debt free with improved borrowing power or improved holding power or a passive income in retirement. Sensible and smart and strategic gets me those things - now more than ever . cant rely on speculative outcomes to do all the easy work. Not anymore. So if that requires a boring approach, I'll take that every minute of every day of every week....

 

Whatever strategy you have, in the event of negative growth, its not really gonna work.

Plus if the economy goes backwards, rents will go backwards. Couple that with rising rates and suddenly your positively geared properties can become negatively geared. Question is will the economy go backwards? If its flat or shows some growth, your particular strategy will work but then again so will things like buying below market value and value adding by reno.

In the end, even with your strategy, you are still betting that your net yields are able to maintain at a higher margin than the interest you are paying on your debt.

of course some strategies will be safer, its all risk/reward. but really in a negative growth market and tightening credit environment, sometimes the best strategy is to just sit it out and jump in again when things start picking up again.

 

With a 15-20 investment plan , short term trends are of no concern to me . And as I have stated repeatedly - I don’t NEED growth . I only NEED rents to hold up and show very modest growth over 15-20 years. I don’t require anything more than that , because I am certain rates will barely move . We are in the same position as every other developed nation - low rates will be with us for a long long time - perhaps decades .
But if something that low risk is still Too much risk for someone completely averse to any kind of risk , they may as well give up and stop doing anything at all. They certainly shouldn’t be reading theses forums .

 

umm... I think it's relevant because of the ripple effect, thats why I am interested at how insulated is Orange from the larger Sydney market based on previous booms. History is the best info we have in predicting(projecting) the future. You mentioned that population is on 40000 to 50000 and few hundred people moving there is enough to drive up demand. But if few hundred people leave the town the demand will dive as well, this means rental return and value will go with it. This mades it quite volatile IMO. Don't get me wrong, I am asking those questions because I am trying to understand regional markets as I have never brought those because of perceived volatility, rightly or wrongly.

 

The reason I said its not relevant is that history - at least as far as property prices are concerned- is being affected by a credit regime that will change future outcomes. ie Future property cycles or trends or outcomes just cant look anything like past ones. so comparing 2003 data is redundant . It is apples v oranges ( excuse the pun)

Setting aside the well known impact of those credit changes on investors, for Sydney and Melbourne first home buyers /young families in particular, the affordability issue that exists today just didn't exist before. Sure there were affordability issues - but not like this. We never had median prices in excess of 10 x income before, and a debt to income ratio of 6 x income, or an IO quota of 30%. These things have started driving some young families to affordable areas such as well serviced regionals, and I expect that trend to continue. The slow down in Sydney and Melbourne hasnt resolved the affordability issues for many young families. I don't think its a coincidence that the 5 biggest performing regionals are all located within 3-4 hours of both cities. Geelong, Bendigo, Ballarat, Orange and Bathurst

I also think we have a different life expectancy and higher costs of living. Many very equity rich retirees wont have anything much except their PPOR and a modest amount of super ... and the idea that they stay living in congested cities with all their funds tied up in one asset may not be something that we see continue. The ability to sell/downsize and park 300K each into super will result in at least some of them selling up and sea changing or tree changing... this is yet another reason its not a coincidence that the 5 biggest performing regionals are all located within 3-4 hours of both our biggest cities. Geelong, Bendigo, Ballarat, Orange and Bathurst.

We only need small numbers to spread out to the regionals - 1% or thereabouts is enough to drive population growth.

As to the question of volatility, I dont see any. Orange has seen over 10 years in a row of NET population increases. Its seen between 0-6% and 1.9% per annum, but the average has been @ 1.3% . Unlike the credit environment , this isnt affected by regulatory intervention , so there isnt any obvious reason for it to change. But there are reasons for it to continue . Aside from affordability and treechanging, I mean. We know that population and job drivers such as the Department of Primary Industries relocation, the new Hospital wing , the medical degree being added to the University and the Blayney Mine , are all real.

We also know that Orange council has record numbers of DA's approved for construction over the past 2 years or so, and that 200 + new homes are being built each year - yet vacancy rates are falling. I think thats quite a revealing statistic. Tells me the population growth is strong enough to drive prices and rental demand simultaneously... tells me that it isnt investors who are adding the majority of supply . All I see are drivers that will at worst underpin and sustain current rental yields and prices, and potentially drive them onwards and upwards....

 

Thanks for the detail explanation @euro73.
Looks like there is a good demand for properties base on the past statistics.
IMO I still don't think we should rule out the ripple effect just yet as it's early stage of the down turn for Sydney. For example the following scenarios might happen; the tree/sea change group might be less incline to sell out at Sydney because of price drop or they could now afford areas such as central coast, Wollongong or Bowal because those areas are likely drop(if hasn't already) due to Sydney correction, so there's less justification to all the way to Orange. Like you said, it does not take all that many people to turn the tide. Anyways you know Orange the best so I hope you are right.

 

Ditto..I am getting out of smaller regionals as we speak.....Wollongong, Central Coast, and Newcastle, Gold Coast, Geelong and Sunshine Coast are exceptions....

 

I think thats wish move for regionals surrounding Sydney.
As for Qld regionals, the main party in Brissy hasn't started so still have much potentials. Where are you going to farm next if don't mind me asking?

 

You make it sound like you have a toe in every market in the country. You don't. For starters - Wollongong, Central Coast, Geelong, Gold Coast and Sunshine Coast are satellites to major metro cities. They aren't regionals. Salt. Grain. Of

The great storyteller of our time.

 

Not sure yet...watching......

 

@euro73 I think those are regional cities as indicated my many sources such as this Cities or Regions of New South Wales - Wikipedia. What are the difference between say New Castle and Orange in terms of classification anyway?

 

When bad times come, you will get negative growth. There will be an oversupply in stock as people try to sell and rents will not hold up. Jobs will be lost and rents will not hold up.

Plus we have had a three decade supercycle. Do you think the next 20years wont be a supercycle of deleveraging? Look at whats happening in Europe, many big economies like Spain/Italy/France still having high unemployment and just dragging on sideways. Japan lost decades is another good example of a supercycle of deleveraging. So is your long term strategy setting things up for a protracted bad investment over next 20year? ;P

Interest rates are on the up and up now. Based on how things are going well in the states, even with the trade war going, not sure if RBA will be able to keep rates low and risk AUD crapping out. Banks still have a significant funding % from overseas so increasing rates are also on the horizon. How can you be that CERTAIN that rates will barely move? especially if you are talking 15-20year long term horizon.

Any investment predicated on leverage, especially with high LVRs like in property, should never ever be touted as low risk.

I would say unless you are able to use strategies like buying way below market value and value adding with quick renos. But even then in a tightening credit environment, it might be better to just hold on to cash until the markets recover in 15-20 years time lol..

In any case, you have a product to sell so people should be able to see the downsides of what is being promoted.

 

That is a risk with every asset class. Sydney is experiencing negative growth right now. Does that mean no one should ever have invested in Sydney?

Says who? Do you own a crystal ball? How do you know whether there will be an oversupply ? Right now , in spite of lots of construction activity, vacancy rates are falling. Population is increasing. vacancy rate is falling. How does that equate to an oversupply? They are building a couple of hundred new homes a year, not a couple of thousand apartments .

Again. says who? right now Govt jobs are being decentralised TO not FROM Orange.
Right now, mining jobs are moving TO not FROM Orange.

I have said the next decade is a decade to deleverage for the past 3 years or more. Pay closer attention. Thats precisely why I advocate cash cows. I will have paid off the dual occ's in 20 years with or without growth. That's like, completely the point If we were still in an expansionary credit environment the need for cash cows wouldnt exist. Doh!

My long term strategy is to be debt free in 20 years. I have said over and over that I invest to buy income streams. That I dividend reinvest those income streams and pay down debt. That I dont NEED growth. That the income is the investment. Did you miss your morning coffee or something today? Or is it the hardhat ???

QUOTE="Kangabanga, post: 612534, member: 618"]Interest rates are on the up and up now.[/QUOTE]

Interest rates are barely going to move. You want to know why Im so confident? because the house of cards is too fragile. If the RBA increases the cash rate, on top of the banks pushing up rates because of "cost of funds" and in addition to IO loans rolling over to P&I and repayments increasing by 50%...the whole thing is coming down. Hard!

The RBA will be very mindful of this. They know that the IO quota has done the work for them. The P&I re-sets are achieving far more than a couple of rate rise will produce. They will be very aware of the risk mortgage delinquencies create for the entire banking system........ and APRA isnt going to abandon its mass P&I migration game. No chance of that. So the RBA wont be able to lift rates. In fact, as I have said before....30% chance of rate CUTS in 2019.

Just so you are aware, my dual occs are well below market value. They are revaluing 50-60K higher than purchase price, upon completion. stock standard 4 bedders on the same streets as my 4 bedder + 1 bedders are selling for the same price or higher than my dual occ's. Just thought you should know that