Wisdom you gained through property investing

Hi guys

some of the knowledge, skills, concepts and mindsets we learnt or developed via property investing could be used and transferred to other areas of life. Thought it might be a good idea to use the collective experiences and wisdom of PC members to articulate it into something that we all could use and benefit from. I will put some ideas here, pls add on:

1. Cycle. Property Cycle, and Property Clock. This concept has been discussed, examed and tested many times over many years. One cycle generally has 4 phrases : Boom, Slow Down, Slump, and Recovery. These 4 phrases make up a full cycle, and repeat themselves. There is no equal split among these 4 phrases, sometimes they can be very distorted. It is virtually impossible to pinpoint and predict when each phrase will commence. For most market, Boom will be followed by Slow Down, then Slump/bottom, and then recovery. The last boom in Sydney finished in 2003, the current boom is likely to finish in 2017, so the full cycle is 13 years.

Like lots of things in life, bad things are unlikely to stay forever, make sure we ride through them, good things will follow.

2. Leverage. One of the amazing things with property investing is leveraging. The old saying “Using the bank’s money to invest, and take 100% of the portfolio” applies here perfectly. For example, say a person buys a property for $500k, pays 20% deposit ( $100k), and Stamp Duty $15k. After a full cycle, the price went up to $1mil (price generally doubles after a cycle). So the overall figures are here (negative gearing is not included in the following calculation, just to simply the concept) :

Overall expenses: $100k + $15k =$ 115k, overall equity gain $1mil -$500k = $500k, thus the return is $500k-$115k=$385k. In terms of percentage of return, it is $500k/$115k = 435% over a cycle.
What if the person buys 2 of the $500k properties, or even 3 or 4. The percent of return is the same, but the overall value return is amazing.

Same principle in life, leveraging/using other people's expertise, standing on the shoulders of giant.

3. Compounding . some people calls it the 5th ( or 8th) wonder of the world. With 8% year on year growth, the value of a property will double in 9 years.

Repeat the simple, small and positive things on a consistent basis, overtime it will fruit big reward.

pls add on.......

 

It gives one a lot more control, rather than relying on others completely. Action is always in the present moment.

 

Thanks Eric. From international student to multi-million dollar property investor

 

The cycle thing only works in bullion market like Syd & Melb, look at the other capital cities, prices barely moved since 2008. Ten years gone by, you would be lucky to have gained 30%.

 

Thanks Eric
The main thing I've learned is to keep it simple. I don't use spreadsheets and graphs and trends, I just purchase the next property when it fits in with my own personal finances and I don't ever look at what anyone else is doing.

 

Cycle, leverage, compounding, all well and good, but you don't get any of that unless the deal goes thru and the money is actually banked!

 

An 'unlikely' example to support this:

My Mum and Dad bought a 4 bed, 1bath, 2 car brick house in Toowoomba in 1972 for $16,000. Today, 45 years later, Mum still owns that house and it would be worth $330,000+.

That is 7% year-on-year growth, for 45 years.

Do I think Toowoomba will have 7% year-on-year growth for the next 45 years?

Do I think my Mum's house will be worth $7M in 2062?

Who knows!!! Who in 1972 would have thought one would get 7% growth in a regional town (doubling every 10 years) for 45 years!!!!

That's the power of compounding.

 

Numbers sound correct, but what about renovations, add on's etc?
Would it be worth the same with nothing ever done to it over that time?

 

fair point @ATANG, Sydney and Melbourne had a good run over the past several years. it might be other capital cities' turn soon. thus the length of the cycle has been extended to a few more years for them, maybe even longer.

 

They have spent nothing on the place except normal maintenance including a few tins of exterior paint that I applied when I was on Uni holidays (I am now 60).

 

Agreed, clock should include a list of cabs off the rank in order from the top.
SYD
Mel
BRI
etc, etc….
Chuck Perth in there anywhere when the mining boom begins again but remember it'll crash just as hard.

 

I have been thinking about this too...but do you really think the wave would drift to other cities as melb and syd cool down?.... Both of those cities act like the head of the train, and once things slow down and the whole economy turns cloudy, banks started tightening, i think other cities with less diversity of economies and weaker migration inflow are going to get hit again. I think the gap between first tier and second tier cities are only going to become bigger, just as what happened in china.

If we looked at 2010-2012, those three years were the point of differences for Syd and Melb comparing to other cities. Those three years were supposed to be the slump cycle, but Melb and Syd hold up well, whereas the other cities fallen hard e.g. 10%. It sounded very little but three years of -10% and another two years to bring prices back, meaning you wasted 5 years of holding!

I guess what i have learnt is, i'd probably won't bother putting money in weaker economies because they are volatile and considering all costs (taxes, agent fees, etc) are the same across all states. It's just not worth it. A couple years of backward, and a couple years of recovery meaning you wasted 4 years of time, whereas stronger economies tend to hold up values well and if you look at their growth chart, they are more like a straight sloppy line instead of up and down and up.

 

Brick helps, I remember being in Toowoomba a few times and checking out possible IP's and thinking, great regional city , a major rural hub on it's own, very close to major (Bris), not a lot could go wrong there.
Well done.

PS: Its the land content mostly with older houses anyways, so a good economical reno and it would go up a bracket or two no?

 

Not so.
Perth did have a boom cycle from 2013/14, but most probably did not notice this on PC. I am in Perth.

I agree that the best markets since 2013 were Sydney and Melbourne in term of performance, but they will also go from boom/bust cycle, its just the property game and history proves this. The key is to buy in when a particular market starts moving and it could be anywhere in Australia.

MTR

 

And yields in Toowoomba are 5+%.

So, total return would be 12+% year-on-year for 45 years.

Geez, this property stuff is such a tough gig .

 

If I was to start again, Toowoomba, Tamworth, Wagga, Albury, great prospects and they just keep growing with a heck of a lot more to grow and there is plenty of room for that, which then makes the inner rings come into play over time.

 

Set and Forget.
Patience.

Some things you just have to leave alone and the results will come regardless.
More time to focus on other things.
Property investing is the closest thing to a truly passive business I've come across so far.

 

I've learnt/enhanced a lot of things over the past few years thanks to property investing.... just some of them are: to communicate more effectively, to negotiate and speak up better, to be more extraverted, to be very determined and confident, to problem solve and think on my feet, to show a passion... and I've become more sharing, more appreciative, happy to express gratitude, feel blessed... huge amounts of personal growth...

Propertywise specifically...
I've improved my skills in looking for the shortcut (how to increase value!), look for the gem, how to do household maintenance, I am confident I can furnish a unit myself in under 3 days, to do due diligence (avoid the duds)...
Understanding psychology and market forces...
And probably a dozen other things.

All great skills and changes in my life. Of course, I understand that not everybody is in this same place.... try to make the world a better place.

 

best wisdom I've gained is learning more and more about myself every day - enforcing good habits, researching well (difficult), dealing with rejection (plenty), negotiating better, responding to issues, managing your property team and plenty more - just have to always be learning, think that's key

 

Nice post @Eric Wu! Love the third point especially... The slight edge principle! I remember when I initially joined PropertyChat I would spend every morning and evening commute time reading all posts everyday and that's still a habit today. It's amazing how much these knowledge has helped me throughout my investment journey and take me to where I am today, so very grateful on all the contributions everyone had made here and hoping I'll also be able to give back some to the community too