"Things are different now"

I've heard this said by a lot of financial/property gurus who wrote books around property, tax and finance. i.e. if you read some of the stuff by Tony Melvin, Michael Yardney, McKnight etc. they'll outline their strategy, but when you go to their website for more resources, they'll say "...oh, now the game has changed and the property market is a lot different".

What do you think has changed? I assume markets have changed since the time of the GFC, and with lower interest rates...

 

Lending rules (ease of gaining finance)
Greater use of mortgage insurance.
Change in attitude toward units
Greater drive to increase population density through government planning controls
Dissemination of 'knowledge' of making money work for the investor
Ease of availability of access to property data sources
Internet

 

The difference is the absence of no doc loans now. Back then you could pretty much pluck a figure out of the sky and borrow to your eyeballs.

 

My opinion is that you have to be more leveraged, more active, more creative and take higher risks in current day to make the same returns as the past, in general.

 

The details change all the time.

The important thing that doesn't change is that growth assets held for the long term are likely to outperform 90% of other investing strategies. This simple fact is 90% of everything you need to know about IP investing.

The remaining 10% are the details - they change each cycle, each new govt, each newspaper headline almost.....

The details today are - low IRs are the 'new normal', finding v. close to c/f neutral is fairly easy, timing the cycle (Bris is likely next), avoiding the recent bank lending restrictions, ignoring the stream of media garbage.

 

I believe at the core the property markets are similar to that of years gone by in that what makes a good investment will depend on that individuals needs at the moment in time.

Investors that have found a way to succeed in the past will find a way in the future,that said if you don't evolve you actually move backwards.

True in business and in life in general..

 

Maybe it's the hidden agenda,and to find out you pay for the taxi ride,depending on time in the real estate market several items have changed, now it's very easy to get money,media soap box unsafe reno shows,insurance is a whole different ballgame from before,several different models of real estate sales,and maybe more simple ones to come with less people,but the core of real estate is still there
if you hold property long enough ,unless the government comes along and takes it back,real estate is still the same the only difference is the price,.

 

Hi Sim
I agree, fundamentals of buy and hold strategy will be safe if you buy the right product and can service debt.

I guess all the changes to bank policy ie lo doc/no doc and more recent changes will slow down investors, perhaps this is a good thing, ? Debatable depending on experience, cash, equity etc


MTR

 

Everything is always changing, i have been on these forums (pc and ss) for over 10 years and in that time i have seen investing trends come and go, hot suburbs rise, markets fall, good and bad economies etc. The important thing imo is to keep trying to take action regardless of the conditions. Adjust your strategy and keep rolling.

 

I agree that the principles haven't changed, just the details. Thanks for mentioning the book Sim.

 

+1 the market/game has not changed.

Only some details.

Over Aussie history, there were always changes every few years. But these were only details. For example, the shift to very high LVRs, first home owner grants, non-bank lenders, very high interest rates, very low interest rates, asset booms, economy cycles, government spending cycles, different foreign investors (Japanese, then Chinese), immigration policies, etc.

The core elements remain the same without change over the years, I think you could take the below points and apply them at any stage of the property cycle the last 50 years with similar results:
* Buy location,location,location
* Never or very rarely sell property. Hold for the long term for compounding gains and equity releases
* Use leverage, as much as your risk profile allows
* Use smart finance - managing your finance/banks is more important than the property selection
* Compound growth by buying more with existing equity, without the hassle of selling costs
* Fix some rates in a rising interest rate environment for "insurance"
* Always keep a buffer of available cash for emergencies
* Make use of all the tax rules available
* Buy in multi-industry capital cities rather than towns
* Don't buy an obvious "top" of a market/city cycle, have a "minimum yield" rule

The changes now are only minor and/or temporary:
* Finance policies got harder recently, but so what. This happened in the GFC and before long they changed again.
* Removal of negative gearing - may happen but the effect will only be short term. There will be a short sharp shock but after a year or two the market will return to equilibrium and returns will be received in similar rates on a net basis.
* Capital growth in units - some think this is true, due to their popularity/acceptability increasing as a way of life. However it's not really changing as recent stats have shown. Unit supply is much more elastic than land/houses, so more demand = more development and it works itself out.
* Information availability on the internet. Sure there is more information, but there will still be just as many people as before who choose to not act and do nothing. Lots of people get mesmerised by internet research and do not pull the trigger or even hit the property inspections.

 

Changes within the market eg new classes of buyer, Ability & encouragement to borrow within smsf for (residential) property

 

Have to disagree Dan, After being stunned by being knocked back on finance with high cash flow property @ 50% LVR The one NG one was said to be a reason though it doesn't make a big loss after tax and that they will only accept 70% of rents even though rents have increased 30%. Property is about finance and it has changed, you cant go to the bank and say you want $X, and they wont say why don't you get more. Some locations will destroy your servicing capacity. The inability to acess equity means having to get a job or sending the wife to work or having to sell a property every 4 years instead of buying or move where it is cheaper to live but I don't want to do that for about 6 years when the kids finish school.. Smart finance? property selection and location is interwoven with finance. Existing equity is harder to acess, growth cant be compounded much if you cant access it. Fixing rates it make more difficult to refinance or liquidate and change assets. Yeids in Capital cities are crap, and will restrict servicing ability, You may need to buy in towns to get cash flow. The rule are only minor until they affect your strategy and plans. I think the lack of ability to get finance will reduce investment and restrict supply and exaserbate the situation.

 

Hi Fargo

You're absolutely right that property investing is about finance.

However I don't think the game has changed. Finance is just harder to get. The rules are still the same.

Look back to when interest rates were high - no one could get more finance then either.

There are lots of times property investors "hibernate". No one buys property at a steady rate of accumulation, you buy when you can. That's why people usually buy in spurts, we buy when we can.

The policy changes are just a reason finance is harder, it's not the only time finance has been hard.

When you were knocked back, was it from a direct bank? Or a broker told you no lender will help you? In my experience a good broker can make miracles compared to an average one.

On yields in capital cities - please check Brisbane and Adelaide, will be happy to help with examples or methods.

We aim to buy some more high yield in Brisbane soon. That is IF we can still get finance will be hard, but if we can't it just means waiting for a year or so.

Yes I also think you're right on in saying that lack of finance will reduce investment and restrict supply. This is part of the reason I think it's temporary. Finance was made more difficult by the banks in order to reduce investor growth below 10%. Once that happens, it will only take one of the 50 lenders we know to take a stab at increasing market share.

Once that happens investors will be jumping on the loose policy lenders via their brokers.

So don't give up. Keep exploring options the next few months and you'll get there. You gotta be tenacious and push for it over a long period of time. It's all possible