Why investors with large portfolios aren't as rich as you think they are

How ironic that this link is on the same page.

Investor of the Year now $3.5m in the red

 

6 Mil portfolio at 90% LVR is 600K equity, of course richer than the person with 0 assets and 0 debts

 

Paper money.

 

Not necessarily actually.... If 1 or 2 properties in negative equity areas. Hypothetically if both positions wanted to be flat, the 6mil portfolio with 90% debt, after all sale costs, negative cash flow expresses plus the negative equity....their net position in the end could actually be worse than having zero assets, zero debt I'm not saying its a situation that's extremely likely, but its also not extremely unlikely these days.

 

Thanks Leo, was trying to type something very similar, but your reply is much more succient.

 

Things can change very, very fast, and not all events can be predicted.
At best, values should only be calculated at what could be achieved with an urgent sale, after costs.
The higher your income/cashflow, the more risk you can take.

 

Why does that Jeremy ianuzuli (sp) video keep appearing on the domain articles? Does he pay domain to keep them there and constantly pop up ?

 

With respect, this isn't saying much at all. Of course we all aim to get good quality properties, but often what is good and bad is clear only in hindsight. It's like saying how a share investor should only hold good shares.

If I was young, and I am, I would much rather hold 100m of assets and 100m of debt. My entire portfolio is a giant call option on everything. If it doesn't work out, I've lost little and I can declare bankruptcy and start over in a short while. If it works out, holey moley...

 

Its easy to buy property, but this is high LVR, servicing this debt will be huge and then it only take one market correction and a couple of interest rate rises for everything to go pear shaped, regardless of whether it is a mining town or not.

 

I think we have had plenty of these stories in those glossy mags

Got to start somewhere, its not all bad.

But success in the main seems to be measured by the number of properties an investor holds, and debt, net worth is completely ignored.
.

MTR

 

But quality of asset is very subjective too.

If the young was smart or even very knowledgeable and managed as part of huis strategy to buy at the start of the boom and get out intentionally and make massive profits.

He would be considered a very smart cookie who knows what he is doing.

Then would you consider it to be a dud asset?

Frankly i thought about mining properties and i would never have bought 10 of them . But i assure you i would still be holding onto them now and probsvly crying

 

Everyone thinks their holdings are quality assets, then with time, a fraction turn out to be right and a fraction turn out to be wrong - the fraction that was right would then congratulate themselves on prudent asset selection.

 

Not sure what quality is ?Properties in mining town such as Karratha started from a low base in 2001 perhaps $150K and by 2006 median property price was around $1M, today 2017 it been shaved by around 50% median and rents.
Its all about the timing.

 

invest in shanghai places there have gone up by more than 1000 percent over the last 10 years apparently

 

exactly!
does an asset automatically become qaulity if it does well?

can an asset go from Quality to no quality or vice versa quickly?

 

Quality to me are properties in locations that are perennially sought after in any market. Sure, they'll drop in value too when times are tough but normally will be the first to rise and the last to drop.

In general:

• houses that you can add value to
• below the median price of the suburb
• purchased as close to land value as possible
• in sought after streets
• within 10-15 kms of the CBD
• Prepared to go further out if the price is right, near transport/infrastructure or in a beachside suburb (or very close to beach)

That's basically been my criteria in a nutshell all these years - and what I deem as 'quality' from a resi standpoint.

 

I think this is the old chestnut if you buy with the above criteria you will always outperform the market.

Not necessarily so, its one of those myths that the gurus like to regurgitate every so often.

Look what happened in recent Syd boom, it was the outer western suburbs that started booming first, not blue chip.... Why?? immigration, affordable housing.

Kudos to you that your strategy is working well for you.

 

Well I can tell you that while the west was flatlining between booms, some of the more sought after suburbs were growing slowly. Property I have in the East was purchased in the $600s in 2003. In 2011 it was worth around $850-900K without any major renovations done since purchase.

Modest growth but it's a myth that (all of) Sydney wasn't doing anything between 2003-2012.

 

...

wherever there is opportunity, just saying I would not limit to what is perceived as quality, growth can come from ugly ducking suburbs and there is evidence to support this, its all about the drivers and timing.

Blue chip in Perth has not recovered since 2007, quality investment not if you purchased in 2007

 

Ditto...just looked at Perth ...amazing what $1.5m will buy there......your point about Bluechips is very valid.

I feel that some of the Sydney Bluechips (as well as the West) have overshot....severely....it should get interesting in a down turn. During the GFC lot of off market sales in the Bluechip areas.

Quality is important but it also has to mass appeal in terms of affordability...