why you should keep calm and buy property

Why you should keep calm and buy property

 

Sydney property is nothing like The Big Short

 

I remember in 2013, there were lots of talk about housing market crashing in Sydney, price too high, people unable to afford. Lots of friends were holding off and wished price to drop. I was worried about my purchases in Western Sydney. Then 2 years late, their value doubled. I just kicked myself why i didn't buy more.

 

It's about timing the market, you purchased close to the beginning of the rising market.
Now Syds western suburbs peaking and prices are starting to fall.

 

yeah ok.. at some point all markets experience corrections ( not ncessarilly crashing..corrections). London, NY , sydney etc...without fail. Fundamental market behaviour and id be worried if it didnt.

 

I guss the point is to work out a property's intrinsic value, don't be swayed away by doom and gloom. The fundamentals will be part of or hold the basic intrinsic value of a property, it might fluctuate with the ups and downs of market, but in the long run it will guve a good return.

 

One of the absolute best things one of my mentors taught me when I was learning how to assess deals was how to analyse the scenario of price and value. He said that most investors only look at price, while the most successful investors are able to look at 'price' in relation to 'value/opportunity' and then make a 'value decision', not a 'price based' decision.

I've been analysing my deals through this lense ever since.

 

thats what many of the spruikers promote, property prices always go up.

If you are happy to ride cycles then you are happy to hold in bust cycles. The problem is bust cycles last much longer than boom cycles. All to their own

 

Can you define value?.

 

very good point. got me thinking too.. thanks

 

Great question, and I think 'value' will vary for individuals to some extent.

For me, value is:

Paying a price that will within (X timeframe) enable me to make X percentage return of profit that is proportionate to the level of risk involved for the deal.

Each deal is different so the timeframe and percentage return would vary according to the deal and risk involved.

 

So you mean properties when you can purely add value either by renovating, developing

 

Well I try to apply it to any kind of scenario. If you take the B & H 'strategy'.

If buying a place for 500k is assessed to be a low risk deal (due to location), bought at 6 oclock, for 50k below asking price. If the place has no way to add value then I would assess:

Is paying 500k and 10% bmv at 6 oclock and then holding for approx. 3-6 years for organic CG whilst having 5% yield, worth the buy in price? Is there enough value for me in that deal when assessed against the time to make profit and risk, or can I look at another deal that will return me better overall value in a shorter timeframe and get me to my goals faster with less or proportionate overall risk.

I'm not sure if I explained it clear enough...and there will always have to be calculated assumptions but that's roughly how I asses it.

 

That is the low balling strategy and rental income covers interest?

 

For me the strategy isn't as important as what profit can I make, in what timeframe for how much risk. Personally I have found that adding value deals are by far the best for me to get to my goals but if there was a better strategy then I am happy to adopt it. I'm not a slave to strategy, I am happy to use any strategy as long as I see value in the deal. With regards to rental covering interest or not, both are acceptable depending on the deal, timeframe and risk.

This is just how I asses a deal.

 

its about making money at the end of the day, many ways to skin a cat as they say.

 

Hope I haven't given you a headache now @MTR

 

100% agree with you. But I feel making money is not enough. It needs to be assessed against a timeframe and risk involved. But like you said, many ways to skin that cat

 

np. That's one of the main reasons I am here too, to be exposed to other ideas, strategies etc from other investors.

Great wealth of knowledge/ideas from so many people here.

 

Hi Leo,

What do you usually do to 'add value' to your properties ? What strategies do you find works best so far ?

If the IP is interstate, do you it difficult or risky to ge the project done and how do you get around the issues ?