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Fair enough. But keep in mind our economic performance in terms of population growth, income growth, GDP growth, even our slow moving productivity growth has been superior to historical norms in the last decade or so. While this may not continue (and certainly seems to be in trouble on various fronts right now), that value won't necessarily be clawed back unless the inputs that created it do too - such as decreased population or negative economic growth (unlikely). Productivity growth and ironically inflation (often seen as the the purpose of borrow and buy housing strategies) seem most likely to be the equaliser in any property related correction.
On the plus the Baby Boomers show no sign of slowing down their real estate aspirations so the correction may take 10 years to play out and may only result in 10 years of underperformance rather than a "crash" (personally I think a quick correction is healthier). I suspect though financial markets may play a bigger role in the shorter term and Bollard will get what he wants one way or another. I really hope it's not some of the legislation mooted in recent press articles because it seems the medicine could be just as bitter as the consequences of outsized consumption and borrowing.
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Member
quote: Originally posted by Mick Jagger
one eyed property people are so annoying...
house prices increase 2% a year in real terms.. same as population growth... simlpe as that.. look at 75 years of history and theres no dispute over that..
current prices will revert back to that longterm trend - its just a matter of how. they either stay still for five years (so in real terms prices fall), or there is a big fall in prices and it happens sooner.
If someone puts down a 10% deposit (for example) then your 2% pa in real terms is a 20% return on their deposit. Of course the cash flow is the other part of cash-on-cash return equation but I only buy when the property is self supporting anyway.
Disc - not "one eyed" about property but very happy with the returns on the portion of my money that is invested in property.
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quote: Originally posted by wns
If someone puts down a 10% deposit (for example) then your 2% pa in real terms is a 20% return on their deposit. Of course the cash flow is the other part of cash-on-cash return equation but I only buy when the property is self supporting anyway.
Quite so. The 2% turns into 20% rationale works for any investment involving similar amount of leverage and assumptions - shares via CFDs are an obvious and accessible alternative. But it is on cash flow that most residential property fails the litmus test. I can even now selectively purchase fully priced shares on better yields that I can purchase fully priced inner city Auckland real estate.
Purchasing a property on a 5% net yield on 90% deposit is a disaster waiting to happen. $350,000 with $35,000 down and $315,000 borrowed at around 8%: Net Rent 17,500 - Simple Interest 25,200 = -$7,700. The property has to increase by 2.2% just to cover the losses, let alone make a profit. Irrespective of the potential gains, an investor has to be able to fund these trading losses from alternative cash flows. Should their personal circumstances change due to illness, business failure or underemplyment suddenly life becomes much more stressful. There is a reason why the respective Rich Lists of the world aren't full of residential property investors - it's simply not that profitable. The benefits of leverage are an illusion and there are much better opportunities available.
Herein lies the fundamental truth of residential property investment: It's a rort designed by real estate agents, banks, builders and developers to syphon cash from from people too stupid to understand that a tax loss benefit first requires you to lose some money.
The most fervent proponents of the sector in this thread are builders, developers and traders, not investors.
Fundamentally the greatest benefit of a home is that it provides somewhere to live, not a superior financial advantage. To 90% of homeowners it represents a commitment to paying for a real asset. The secret to growing wealth here is that they were forced to contribute each fortnight, not that the asset itself exibited any particular superior economics. When you do the math the interest payments make it quite an expensive form of saving, notwithstanding the illusion of capital gains.
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Tell me guys if i buy a property worth $400000 with a lets say 10pc deposit or $40000 that is self funding through rent or whatever which over ten years is the norm that doubles in value then you tell me its a bad deal. I spent $40000 and end up with $460000 in ten years no risk no work no worries. I know lots of rich people that do much better than that. Twist as much as you like your $40000 deposit can be refinanced on the way to have you sitting in ten properties all getting that caputal gain. All markets rise and fall this market is no different get out at the top buy at the bottom. To play this market you must understand the rules which to me some of you are oblivious to. Ever second year each property will finance you into a second property so therefore your first $40000 deposit turns its self into two properties then 3 and so forth. I am amazed at the straight out stupidity that argues and thinks they are right that havent worked out this straight out system to wealth. I am very pleased that you think the way you do keep it up here is laughing at you. macdunk
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Member
quote: Originally posted by duncan macgregor
BRICKS, Lets take your friends case paying $500 pw or $26000 per annum. The landlord has an investment that pays according to your figures less than 2%per annum and according to figures that i say an average for the last thirty years of a capital gain of 10%. I say that the landlord can borrow 90% of the initial investment or a deposit of $100000 and make your friend look stupid by renting.
Do the sums again then stop and think who the dummy is. Macdunk
But what about the interest bill?????????????????????
10% capital gains + 2 % rent - 8% = 2%!!!!!!!!!!!!1
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quote: Originally posted by duncan macgregor
...All markets rise and fall this market is no different get out at the top buy at the bottom....
...Ever [sic] second year each property will finance you into a second property so therefore your first $40000 deposit turns its self into two properties then 3 and so forth...
So which is it? Do all markets rise and fall or does this market rise so inexorably that you can ignore the rules of cashflow and buy another house every two years. This would imply the market never falls and that cashflow is always positive for capital growth properties.
MacDunk you've previously talked about your own experiences with property and what you have described have been trading and developing activities, not long term investing.
Extolling the superior economics at the miniscule yields the current market delivers is equally laughable. I have a number of friends who are property investors in one way or another and the two who actually realise it's a business and not a get rich quick scheme have both switched to trading strategies because buy and hold doesn't stack up unless you buy in the ugliest areas of town with the worst capital gain records.
quote: Originally posted by duncan macgregor
...I am amazed at the straight out stupidity that argues and thinks they are right that havent worked out this straight out system to wealth.
Me too.
quote: Originally posted by duncan macgregor
I am very pleased that you think the way you do
Me too.
quote: Originally posted by duncan macgregor
...keep it up here is laughing at you.
Back at ya.
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Junior Member
where does this "doubles in value in ten year thing come from"?
7% real growth per annum is ridiculous...
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It comes from me mick. I gave an example of my neighbours bare paddock next door bought at $68000 eleven years ago turned an offer down of $340000 on my advice. The price of my home and land has risen in similar fashion. I told him he will probabely get about $600000 for it in five years time. I have never owned a property that didnt increase in value by at least 10pc pa. Look up the history of house prices ten years ago then look at what they sell for today. The idea is use the banks money the rent money even a dummy can do it, its a bigger dummy that hasnt exploited it. macdunk
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quote: Originally posted by duncan macgregor
Tell me guys if i buy a property worth $400000 with a lets say 10pc deposit or $40000 that is self funding through rent or whatever which over ten years is the norm that doubles in value then you tell me its a bad deal.
Duncan, I am not sure the past is always a good way of looking at the future. At best we need to consider the past and get a handle of the present - and then we might get to within 50% of knowing the future. I guess I keep coming back to it - If I was to today buy the property you have described above I would need to get at least $1,000 a week rent to cover my outgoings. Not so long ago I rented a $400k modern house and paid $350 a week. Perhaps where you are you can get a whole heap more in rent
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14-11-2005, 10:28 AM
#100
Junior Member
oh right... well done then you've obviously bought well... although the fact that my TPW shares have given 30% total return pa for the last 10 years doesn't give me the right to say... "Shares return 30% pa"...
so again i come back to the simple facts that the numbers tell us... take 70 years of house price increases... remove inflation and you get 2% real returns.
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