Property investment caution: when and how it can all go wrong

I feel this is quite a ridiculous article- looking for a story about property failing but really it's more about an investor not doing maths 101 on an investment (and ultimately the owner didn't really lose out as they sold it for a profit 5 years late).

1. When you buy a property, its pretty simple to throw some calculations together in a spreadsheet- did this guy not even do that?
2. Don't buy a 28m2 property!

http://www.news.com.au/finance/real...g/news-story/3f64d7ada49fc918906ed3435cb583e6

 

Yeah, and if he had held onto it, it probably would have doubled in the last four years considering it's Sydney.

 

lol that story is ridiculous in so many ways that it is not even worth reading.
would be much better if the report had a more accurate title:

Property investment caution: you need to be able to do year 4 maths, but even if you can't add 2 numbers together, you probably will still make a profit

 

Here's the thing, though - it's fun to dismiss this sort of article as silly people making silly decisions... but property (and other asset) price movements can and often are influenced by disproportionate numbers of inexperienced investors.

A lot of these sorts exist in the market - bandwagon jumpers who've bought indiscriminately, with no knowledge of investing, in over their heads, and into extremely expensive and oversupplied assets like fringe suburban developments and apartments. These sorts are hugely vulerable to corrections, and they're unlikely to be patient if they see their expectations of profit evaporate.

The "where it can go wrong" isn't in the fact these buyers are getting into trouble because of their own silliness (they are, certainly). No, it's in the fact sooo many of them have bought, en masse, at all. Many investors today have no business being in the market. They've overborrowed, snapping up often multiple properties without a plan beyond "sit back and get rich quick".

Bubbles aren't burst by decent, knowledgable, sensible, active investors - they're burst by the horde of noobish idiots who engaged in manic buying, based solely on the fact prices were going up, and independent of any real consideration of market fundamentals.

Just as an aside - if your reason for buying or holding is "such and such a place/asset/city has seen awesome growth and I don't want to miss out on the profits" then you are probably one of those noobs.

If you can't look at fundamentals like the rate of population growth, income growth, physical housing supply, rates, rental demand - and to a lesser but nonetheless significant extent your competition from like residences (taking in factors like access to good schools, commute times, renovation potential, proximity to services, income security and popularity of the suburb and so on - i.e. the things you will have on your side if your home is competing with an oversupply of similar homes on offer) then you are placing your future solely in the hands of the same tsunami of manic, inexperienced, speculative FOMO investors that have caused unusually rapid price growth in very recent years. A good investor has a strong idea of where continued momentum is going to come from, and no you won't always be right, but you're not going in blind.

In bubbles, prices are driven down by panic sellers. The same sorts of inexperienced investors who bought high with little forethought... these are the investors capable of reversing your gains if a lot of them suddenly and collectively start to poop bricks and bail. Just the sort of investor featured in this article.

Be very, very wary of that investor. It has company.

 

exactly, the young guy had not much savings not a huge salary,

if you want to get into the market, esepcially after hearing those stories saying people who knuckled down and bought as early as apossible, and years later its the best decision they made

the guys was a frist time investor, I doubt anyone is a expert investor for their first IP

in the end, he didnt make the best decision, but hes better off than these guys

What Happens to Mining Towns After The Boom?

 

Hopefully the fellow is wiser now due to the experience and not going to do another silly mistake, but to be fair I think I may have liked to live in the place though.

 

But if you read the article to the end, he realised his mistake, changed his attitude, sold the studio and reinvested in three cash flow positive properties in western Sydney now worth over $1m. Since one house has a granny flat that us act ally four income streams.

He is candid about the mistakes he made, and the steps he took to rectify.

Kudos to him.
Marg

 

“I just looked at the numbers in the property market and thought it would work for me but I didn’t look at the cash flow"

...didn’t look at the cash flow"

...didn’t look at the cash flow"




But we were all 21 once! At least he learnt in the end!