Tuesday, February 19, 2019

45 signs pointing to a big year for property in Brisbane | CASE STUDY

If there was any doubt in my mind just how things were going to go this year for Brisbane’s property market, there were clear signs last weekend!

We arrived at our first auction for 2019 to find that there were 45 people registered to bid and what must have been a crowd of around 100 people crammed into the backyard!

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Strong Ave, Graceville

As you can see, there is nothing all that special about the house we were planning to buy, in fact it is a knockdown.

However, it was located in one of the best streets in Graceville and is a rare flood free 822 sq m site that can be developed into two new homes, each on smaller low maintenance 411 sq m blocks.

We had a feeling the property was going to be very popular as these rare flood free sites, close to schools, train and shops always are.

But lining up to register to bid with 44 competitors, took it to a whole new level!

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The line up to register

Then it was taken to another level again when we entered the backyard, ready for the auction to commence, only to be met head on with a crowd of around 100 spectators.

I was speechless and called an urgent meeting with our team and the client to finalise our auction bidding strategy.

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Auctioneer and some of the crowd

Our auction bidding strategy

We knew that there were definitely bargain hunters out in force as it was a public trustee Auction.

The Public Trustee tends to deal with deceased estates and mortgage stress properties that sell for bargains in outer, low demand areas, but the difference this time round was that this property was in a prime location.

graphic-brisb-new
My first step was to take out these bargain hunters and with them, take the emotion out of the Auction with a strong opening bid.

You see…prices can get out of hand once people start to bid with their hearts rather than their heads.

With that achieved, it was down to 4 other serious bidders and the strategy remained the same – larger, strong and quick incremental bids, to give the perception we would not give in at any cost.

We hit our final bid of the day at the top range of our budget, which because we’d done our due diligence was enough to secure this amazing asset for our client.

Had emotion crept in or had it appeared to the other bidders that we were close to our maximum budget, we may have missed out by the slightest of margins.

I always stick to our tried and proven Auction strategies.

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The Metropole team with our happy client

The Brisbane Market

So clearly there are strong and positive signs for the Brisbane market early on in 2019.

It was not just this site that attracted a lot of interest.

Another home in the exclusive Teneriffe pocket attracted 35 bidders and sold for a strong price and numbers are up generally across the board.

Brisbane Market UpThere is high demand for quality, blue chip properties with a twist or something special about them and buyers are willing to pay for the opportunity.

With infrastructure, construction, jobs and our population continuing to grow over the next few years in Brisbane, it may not be the last Auction we go to with record numbers this year.

Brisbane is tipped to grow about 4% – 5% this year, but in these types of locations capital growth will be far greater as demand is considerably higher than the supply of good properties.

You just need a team of professionals to help you find these opportunities and then the right team to put you in pole position to secure them!

Currently there is a healthy level of affordability in Brisbane at a time of increased interstate migration from Sydney and Melbourne and the return of local and interstate investors seeking strong rental yields plus capital growth should help make 2019 a good year for Brisbane property.

Our Metropole Brisbane team has noticed a significant increase in local consumer confidence with many more homebuyers and investors showing interest in property.

At the same time we are getting more enquiries from interstate investors there we have for many, many years.

If you’d like to know a bit more about how to find investment grade properties in Brisbane please give the Metropole Brisbane team a call on 1300 METROPOLE or click here and leave your details.



from Property UpdateProperty Update https://propertyupdate.com.au/45-signs-pointing-to-a-big-year-for-property-in-brisbane-case-study/

20 Smart quotes from Warren Buffet

Why not learn from the best?

There’s a reason Warren Buffett is one of the most frequently quoted investors around.

He’s s a true genius as he is able to simplify complex ideas into quotes that will stand the test of time.

So here are 25 of his best takes on investing, success, and life in general:

1. “Someone’s sitting in the shade today because someone planted a tree a long time ago.”

2. “If past history was all there was to the game, the richest people would be librarians.”

Pablo

4. “The best thing that happens to us is when a great company gets into temporary trouble. … We want to buy them when they’re on the operating table.”

5. “Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.”

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7. “You only find out who is swimming naked when the tide goes out.”

8. “Anyone can pick a winner in a bull market. Picking out winners in a declining market is where true greatness is found.”

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10. “You only have to do a very few things right in your life so long as you don’t do too many things wrong.”

11. “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

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13. “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

14. “I am a better investor because I am a businessman and a better businessman because I am no investor.”

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16. “We’ve long felt that the only value of stock forecasters is to make fortunetellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”

17. “Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.”

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19. “Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, ‘I can calculate the movement of the stars, but not the madness of men.’ If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.”

Bonus Quote:

pablo (43)

You may enjoy reading:

More Inspiring Warren Buffet Quotes

10 Great Warren Buffet Quotes For Investors



from Property UpdateProperty Update https://propertyupdate.com.au/20-smart-quotes-from-warren-buffet/

Do you know the Australian demographic tribes

We all belong to one – a demographic tribe.  

Australia is one big country of many tribes. city family urban suburb

If you don’t belong to one you don’t survive.

Some are easy to find: it might be your footy team or where you work; the way you vote or the way you dress.

But there’s another set of tribes that are of interest to property investors –  the tribes and labels that demographers divide us into.

These include:

YUPPIEs

This term came around in the 1980’s for  (Y)oung (U)rban (P)rofessionals and describes someone who is young, possibly just out of university and who has a high-paying job and an affluent lifestyle. 

guide-to-getting-rich-ad-PU

Which stands for Young Urban Professional.

Yuppies are usually the children of doctors and lawyers, hold Master’s degrees from Ivy League universities, and are very concerned with their appearance.

Many were in fraternities and many live in expensive houses or apartments.

Yuppies are what happens to hipsters and preps when they grow up.

Their culture revolves around Starbucks coffee, expensive foreign restaurants and romantic comedies starring Julia Roberts or Tom Hanks.

Yuppies generally only hold political views that are considered trendy.

Many yuppies go into fields such as politics, big business, public administration, medicine and law. You may have worked for one.

DINKs

Double Income, No Kids.

A household status for a couple who both make money and don’t have to spend it on young.

SNAG

It was cool to be a Sensitive New Age Guy in the 1990s, and then there was the…

WAG

Wives and Girlfriends – notably of sporting stars.

More lately there have been…

KIPPERS

Kids in Parents Pockets Eroding Retirement Savings in other words adult children living with their parents. 39524429 L

The theory goes that boomers were raised by the strict Depression generation and who, later in life as parents, were therefore prone to indulge their own children, often at the expense of compromising their retirement savings.

Nearly 1 in 4 (23%) people aged 20-34 continue to live in the parental home.  In Sydney and Melbourne, this figure is even higher (27%).

And it’s not just those in their 20’s.  In Australia, there are 117,547 people in their early 30’s still living at home with their parents (8% of Australians aged 30-34).

The most common reasons for staying are financial issues and the convenience associated with living with parents.

NETTELS

Not Enough Time To Enjoy Life – these are the very busy couples and families, usually found in the capital cities burdened with a large mortgage, a relatively expensive lifestyle, and a long working week – often with a long commute as well.

One reason the NETTELS are working so hard is that they have KIPPERS still living at home and costing them money.

TWITS my-kids-never-ask-for-money

Teenage Women in their Thirties these are women who behave like teenagers.

Just like teens, they obsess over the latest trends.

They organise girls’ nights out, get hooked on online social networking and spend up big on retail therapy.

Victoria Beckham and Pink are celebrity examples.

BOOMERANG KIDS

Generation Y are increasingly likely, once they have moved out of the home – to move back there again.

Of Australians aged 25-29 who live in their parental home, more than half of these (54%) have moved out, and returned again.

Most (52%) last less than 2 years before moving back to the parental home with 20% lasting less than 1 year.

16% last more than 4 years before returning home.

Indeed, many Gen Xers and Yers are returning to the parental home with their own young children in tow according to demographer Mark McKrindle. 

Baby boomers

There are no precise dates for when this cohort starts or ends. retire-baby-boomer-leisure-exercise-sun-bike-beach-elderly-old-couple

Demographers typically use birth dates ranging from the early-to-mid 1940s and ending from 1960 to 1964.

Increased birth rates were observed during the post–World War II baby boom, making the baby boomers a relatively large demographic cohort.

As a group, baby boomers were the wealthiest, most active, and most physically fit generation up to the era in which they arrived, and were amongst the first to grow up genuinely expecting the world to improve with time.

They were also the generation that received peak levels of income; they could therefore reap the benefits of abundant levels of food, apparel, retirement programs, and sometimes even “midlife crisis” products.

The increased consumerism for this generation has been regularly criticized as excessive.

Sandwich Generation:

This is a generation of people (usually Baby Boomers) who care for their aging parents while supporting their own children.

This sandwich generation arises from the combined trends of delayed childbirth, the delayed financial independence of children, and the increasing life expectancy of the older generation.

The Downagers:

These are Australians aged over 60 for whom age is just a number and feel and act far younger than their age would suggest.

They are the fastest growing segment of the 60+ demographic and they value travel, lifestyle, social connection, and they adapt quite easily to new technology.

Silver Stylers: baby boomers

These are the 7% of Australians aged over 65 who can be described as having a high net-worth and are sophisticated, cosmopolitan retirees who are the antithesis of the traditional pensioner.

According to social researcher Mark McCrindle the Silver Stylers have options, recognise quality, and as well-travelled, educated and experienced seniors, they don’t look like retirees used to.

While there are only about 200,000 Silver Stylers in Australia, they are a fast-growing cohort with their numbers swelling as the Baby Boomers enter their ranks.

Do you belong to one of these tribes?

I’d be interested in your comments below.



from Property UpdateProperty Update https://propertyupdate.com.au/do-you-know-the-australian-demographic-tribes/

Mortgage Offset Account Explained

Once you have bought your home, there are ways that you can minimise the interest you pay over the life of the loan. 

fha-loan-requirements

This can include making additional lump payments or repaying the loan fortnightly instead of monthly.

One of the most popular ways, however, is to establish a mortgage offset account, which will reduce the interest payable on your home loan depending on the savings you have in your offset account.

A mortgage offset account is separate to your home loan, so therefore, it needs to be established with the same lender.

The way it works is that any savings that you have in the offset account reduce your total loan amount, which in turns reduces the interest you need to pay. For example, if your home loan is $500,000 and you have $15,000 saved in your offset account then your monthly or fortnightly repayments will be calculated on $485,000.

As you can imagine, if you can keep a certain amount in your offset account then the total interest payable over the life of your 25- or 30-year-old mortgage can be reduced significantly.

Benefits of Offset Finance

An offset mortgage account can be beneficial to both homeowners and investors if they are disciplined.  

investor-enquiry-form

One of the major advantages is due to the fact that the interest rate on your home loan is generally higher than what you can earn in a savings account.

Many people deposit their tax refunds, salaries or other lump sum cash payments into an offset account so their home loan is continually lower than it would have been without these additional funds offset against the loan.

While offset accounts can benefit all property owners, there can be particularly helpful for investors.

Investors may be able to claim a tax deduction for interest paid on their investment property loan if it is clear that the loan’s purpose is specifically to fund the investment property.

However, investors could inadvertently change the loan’s purpose if they deposited additional funds into their mortgage to reduce interest payments, then later withdrew those extra funds for another use. Pros vs cons

With an offset account, deposits and withdrawals can be made without the purpose of the loan being affected.

While an offset account can benefit everyone, it is particularly useful for people who may have large cash savings or are paying the highest tax rate.

This is because if you leave any savings in an account in which you earn interest, you will likely have to pay tax on those savings.

With an offset account, however, you don’t earn any interest on those savings – in fact, you’re saving money on your home loan – so there’s no tax to pay.

What to look for in an Offset Mortgage

There are hundreds of loan products on the market, tailored to a variety of different uses.

You can get loans with mortgage offset accounts for regular home loans, property investment loans and even for construction and renovation purposes but not all loans are created equally.

Some of the key features to look out for in a mortgage offset account include a no balance limit that allows you to use it like a regular savings account until the balance increases to offset the property loan; a facility that offsets 100 per cent of your balance against your loan, calculated daily to maximise the financial benefits; and one that has an interest rate that is the same as your property loan and moves in line with any changes to that interest rate as well.

How does it work in real life?

Let’s now take a look at how mortgage offset accounts work in real life, because you may well be surprised at the savings you can achieve by Meeting outsideestablishing one.

Keeping the previous example of a $500,000 home loan but perhaps with savings of $30,000 in a mortgage offset account that is your six months’ cash flow buffer to see you through any financial difficulties such as unexpected illnesses or job loss.

Using this example, with a five per cent interest rate, a loan term of 30 years, monthly repayment, and a consistent $30,000 in your offset account you can making significant savings over the life of the loan.

Home loan offset calculator

Home loan offset calculator

Using a mortgage offset facility, with a $30,000 balance, you can save a huge $92,000 of interest over 30 years and reduce the time of the loan from 30 years to just over 27 years.

You can create different calculations for your own personal financial situation by using a mortgage offset calculator.

It’s important to remember, however, that you need to disciplined, and not spend the savings you have in the offset account because any additional monies you have will reduce the total interest paid.

Using a Credit and Debit Card with an Offset Account

If your loan has an offset account attached to it, it may be worth asking your lender if there is a debit card you can link to it.

People with offset accounts linked to their savings accounts or debit cards may have the ability to withdraw cash. debt

This option is particularly useful for people who may have their salary deposited into their offset account because even though they will likely need to use these funds for their everyday living expenses, interest is calculated on the balance of your loan and offset daily so it will still reduce the total interest payable.

However, having a debit card can be risky because it can provide ready access to funds, especially for impulse purchases, which are better served staying in the offset account than buying a new pair of shoes or a tropical holiday.

Another option that many people use is to have a credit card, which that use for all of their expenses and is paid off in full every month from the additional savings in the offset account.

Again, this is a good option for diligent savers, as it’s likely that the total credit card debt every month is reasonable and has already been budgeted for out of their salary or wages.

The point is that by keeping those additional funds in your offset account for a month, it will reduce the interest payable over that period.

Of course, it’s vitally important that your credit card is paid off in full every month so you’re not hit with high-interest rate charges from the card issuer.

Redraw vs. Offset Finance

There are principal differences between redraw and offset finance loans so let’s take a look at each of these now for clarification.

A redraw facility enables you to deposit any spare income you have directly into your home or investment loan account – although it isn’t recommended that you do this for investment loans unless you are on a fixed rate repayment as it may have tax implications.

You can then redraw from the loan account any funds that are in excess of your regular repayment schedule.calculator coin money save debt

A redraw account can be very effective if you can foresee some changed circumstances – for instance, you can make additional payments while you have the capacity to be able to pay excess amounts into your loan in preparation for a time when  this capacity may reduce.

An offset mortgage account, however, is a transaction account that can be linked to your home or investment loan.

The credit balance of your transaction account is offset daily against your outstanding loan balance, reducing the interest payable on that loan.

The main reason Intuitive Finance prefers offset accounts to redraw facilities is that, while it has the same impact on your mortgage as you go, it’s when circumstances change that redraw facilities may restrict your capacity to achieve what you want.

At the end of the day, offset accounts are cash and available to use 100 per cent at your discretion whereas redraw has limitations.

Further readingipad coin

For more information on mortgage offset accounts, whether you’re a homeowner or an investor, consider the following resources:

  • How mortgage offset accounts can benefit property investors
  • ASIC’s Money Smart guide to choosing the best home loan for your circumstances
  • The definitive outline to what you need to know about lines of credit, offset accounts and redraw facilities so you can make the most of your property investments

Disclaimer*

The information provided in this article is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs.



from Property UpdateProperty Update https://propertyupdate.com.au/mortgage-offset-account-explained/

Fifteen wealth myths that hold property investors back

Money doesn’t discriminate; it doesn’t care who you are or where you come from.

No matter what you did yesterday, today begins anew and you have the same rights and opportunities as everyone else to become wealthy.

Yet the sad reality is that the majority of Australians will never achieve financial freedom.

Click here to view the video on YouTube.

On the other hand a small group of Australian property investors are becoming very wealthy.

This week, I begin exploring the common myths about money that hold many people back from achieving their financial goals.

Myth # 1: It takes money to make money Money 1

Despite what some people believe, it doesn’t really take a lot of money to make money.

Many Australians have untapped equity in their homes that they can use as seed capital for investments, while others will have to learn the discipline of saving to get some start up capital.

Then all they need to do is invest in high growth investments such as residential real estate and use the magic of compounding, leverage and time to grow their asset base.

You don’t need a fortune to begin making your first million; you just need to commit to making a start and stick with it.

Myth # 2: I don’t make enough money 

propertymarketupdate

Almost everyone makes enough money to become an investor.

The truth is most people don’t have an income problem, they have a spending problem.

Look at your current wage and ask yourself; how much am I likely to earn over my lifetime?

For most of us, the answer will probably be over a couple of million dollars.

The problem is most of us spend as much as we earn.

You’ve got to start living within your means, paying yourself first, saving a deposit for a property and investing in order to break your current pattern.

Myth # 3: My job and superannuation will take care of my financial future

If you accept my definition of financial freedom as having enough passive income to finance the lifestyle you desire, without having to work; you will never achieve this through your job or superannuation. Instead you will need to take control of your financial future by investing.

Even if you try to save 5 or 10% of your income as many financial planners suggest, you’ll find it won’t give you a big enough nest egg to fund your retirement.

You just can’t save your way to wealth

Myth # 4: I’m not smart enough

In our country everybody has the ability and opportunity to become rich. Bill Gates Steve Jobs

Successful people come from different backgrounds and while some have university degrees, others never finished high school.

To reassure you that an education doesn’t equal a financial fortune, here are a few multi millionaires who never graduated from college: Bill Gates (Microsoft), Michael Dell (Dell Computers) and Steve Jobs (Apple).

The truth is you can do whatever you want; not being smart enough is just another excuse.

Myth # 5: Investing is complicated

Developing your own financial freedom is only as complicated as you make it.

Sure gaining the knowledge to become financially independent is challenging, but many new things seem more difficult than they are until you develop an understanding of them.

Investing is no different.

It’s easier than ever before to learn the fundamentals of wealth creation, with limitless tools available in today’s high tech, info-laden world.

The key is to learn from the right people – those who’ve already achieved what you want to achieve.

The process is also simplified when you select an investment niche such as residential property investment and develop specialist knowledge in that area.

If you want to know what to invest in and where in this new reality – the new normal (at least for a while) – please join me at my upcoming Property Market and Economic Updates that I’ll be conducting in Brisbane, Sydney and Melbourne in March and April this year

I will be presenting a heap of BRAND NEW content I haven’t discussed in public before.

So please click here now and find out all the details and reserve your place.

I’ll be joined by Dr. Andrew Wilson, Australia’s leading property economist, Ken Raiss, Director of Metropole Wealth Advisory and local property experts, so please click here now and find out all the details and reserve your place.

Profitable Property InvestmentMyth # 6: Investing is risky

The dictionary definition of “invest” is: “To commit (money or capital) in order to gain a financial return.” The word “risk” doesn’t even get a look in.

However many people speculate when they think they are investing – they buy a property in a secondary location or off the plan “hoping” it will increase in value. Speculation is risky.

On the other hand, finding a property with an element of scarcity so it will always be in strong demand, in an area that has always outperformed the averages and buying it below its intrinsic value, is a proven investment strategy that minimises your risk.

Myth # 7: You have to know how to time the investment markets

It’s often said that timing is everything when investing, but that’s not really the case.

Sure timing matters – you don’t want to buy property at the peak of the boom, but successful investors find that timing isn’t really that important.

Have you noticed how some investors do well in good times and do just as well in bad times, while others do poorly in good times and even worse in bad times?

The truth is, successful investors know how to create wealth at any point in the property cycle while unsuccessful investors manage to lose money at the same stages of the cycle.

This suggests to me that it’s not our external world that determines whether we make money; it’s something inside us – our mindset.

Another 8 Myths…

Next week I’m going to share another 8 wealth myths that tend to hold back ordinary Australians from reaching financial freedom.

The good news is that, as you become aware of these myths, you can do things differently

You can choose to change your beliefs and produce outrageous results and reach every goal you set by investing wisely in the right type of property.

Of course while property investing may be simple it’s not easy.Goal

And that’s not a play on words.

Fact is, around 20% of those who get involved in property investment sell up in the first year and close to half sell their property in the first 5 years.

And of those investors who stay in property, about 90% never get past their second property.

So if you want financial freedom from property investment to fund your dreams, you’re going to have to do something different to what most property investors are doing.

You’re going to have to listen to different people, to whom most Australian property investors listen.

You’re going to need to set yourself some goals and follow a strategy that’s known, proven and trusted.

Then you grow your property investment businesses one property at a time.

Of course…you need to buy the right type of properties

Ones that have a level of scarcity, meaning they will be in continuous strong demand by owner occupiers (to keep pushing up the value) and tenants (to help subsidise your mortgage); in the right location (one that has outperformed the long term averages), at the right time in the property cycle (that would be now in many states) and for the right price.

Property BuyTo become a successful investor you will need to surround yourself with a team of independent and unbiased professional advisors (not sales people) – a team of people who are known, proven and trusted, so it is probably appropriate to remind you that in changing times like we are experiencing, no one can help you quite like the independent property investment strategists at Metropole.

Why not join me and a group of property and tax experts at my upcoming Property Market and Economic Updates that I’ll be conducting in Brisbane, Sydney and Melbourne in March and April this year

I will be presenting a heap of BRAND NEW content I haven’t discussed in public before.

I guarantee there will be several things I reveal that you are not doing and you should be!

Click here now to get more details and reserve your seat.

Property & Econonomic Update

If you want to cut through all of the media hype, and all the contradictory predictions, and finally learn the truth (good and bad) about what is going to happen to the Australian property markets, this seminar is exactly for you…

Click here now to get more details and reserve your seat.

propertymarketupdate


from Property UpdateProperty Update https://propertyupdate.com.au/fifteen-wealth-myths-that-hold-you-back/

Monday, February 18, 2019

Understanding the property investment cycle.

I’ve often said that until you have invested through a full property investment cycle, you won’t fully appreciate how the real estate market actually works.

So if you’re a little confused about what’s happening in our property markets and keen to understand what’s going to happen to the value of your home or investments, I’m going to share with you what you need to understand about property cycles.

You see…though it’s often said that the value of well located capital city properties increase by about 8 each year in Australia, this is not constant each and every year.

Looking at the 2 charts below from Aussie using Corelogic data you can see that values tend to rise in waves.

In some years there will be strong growth and in others there will be no growth and in every property cycle there are times when property values fall.

 

 

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5788994

 

 

How a property cycle develops

A really simplistic version of the cycle goes something like this… property time market clock house cycle investment timing watch growth

As our population grows there is an increased demand for real estate and this causes an increase in rents and in demand for new homes from owner occupiers.

Slowly this causes property values to increase because of the forces of supply and demand.

Some people buy new homes while others get started in real estate investment.

At the same time builders and developers hop on board and start constructing new dwellings to meet the increased demand.

However the pendulum tends to swing too far and over time we get to an oversupply of dwellings which eventually results in rent reductions and slumping home values.

Yes…despite what many agents will tell you, real estate values may fall and often have.

Of course in other years, values may rise by over 20%.

How long do property cycles last?

Putting a timeframe to these cycles is not easy. 

investor-enquiry-form

Looking back over the past few decades, cycles in Australia have generally lasted about seven to nine years and property growth has peaked in the following years: 1981; 1987; 1994; 2003; 2010, 2017

But these cycles don’t exist because a number of years have passed.

They occur because of a combination of factors and influences such as the state of the economy, social and political issues.

The fact is that looking back over the last 30 or 40 years well located properties have seen their values double every 10 years or so.

However, at some stages of the cycle values increase and at other times they stay flat or decrease.

Cycles

As shown in the graphic above, at certain stage in the cycle property values exceed the underlying long term trend (such as in boom times) and at other stages they fall short of this long term intrinsic value (such as during property slumps.)

As I’ve said the pendulum always swings too far in the world of property investment.

History shows that the property cycle consistently passes through 4 phases:

Property Cycle© 2007 -2019

The BOOM PHASE

This tends to be the shortest phase of the cycle.

During the boom real estate prices increase rapidly – often by more than 20% per annum.

Remember Sydney in 2015-17? Future Sydney Scenarios

The boom often begins slowly but brings a whole new generation of investors coming into the market, driven by property seminars, the press, TV shows and the like.

At the same time as home owners push up demand for houses and together this leads to increasing property prices.

Greed starts to kick in, as does speculation.

Often potential investors who can’t really afford to buy property extend themselves and speculate. Some even buy “off the plan” hoping to sell at a profit, expecting prices to keep rising.

At this stage of the cycle banks often encourage investors with easy credit, sometimes lending them 80, 90 or even 100 per cent of the cost of their investment properties, causing some to over-commit themselves financially.

Fear also drives property booms as investors see property prices going up all around them.

They are worried that thy may miss out on the profits the boom has delivered to other investors.  Sydney Market Down

You’ll often find them willing to negotiate to buy at considerably above the asking price at a time when sellers keep racking up their expectations as they notice the high prices achieved for neighbouring properties.

Not understanding the dynamics of a property cycle, many of these beginning investors become overconfident at a time when they probably should be the most cautious and they are prepared to overpay just to get into the property market, pushing up property prices to levels that are (in the short term at least) unsustainable.

Vendors also become greedy pushing up asking prices and this just feeds the property boom.

As the boom moves on many builders and developers flood the market with new properties to meet the increasing demand from owner occupiers and investors, but invariably they eventually flood the market with too many properties.

In general, booms are stopped when the Reserve Bank (RBA) increases interest rates to slow down the economy, and in the past it’s been quite effective at doing this.

More recently (in 2014-18) the Australian Prudential Regulation Authority (APRA) has made the banks tighten their lending criteria to investors to deliberately slow a market that it judged to be overheated. Reserve Bank Of Australia

Each peak is accompanied by a chorus of voices who deny the top is anywhere in sight and it’s impossible to predict with any accuracy the moment when the cycle turns, however a peaking market is likely to have several of the following characteristics:

  • Property values have risen strongly for a number of quarters
  • Auction clearance rates are at high levels indicating a strong sellers’ market.
  • High levels of credit growth have occurred because consumers are borrowing more
  • Banks’ lending criteria have loosened and there are lending instruments. In the last big boom, no–doc and low-doc loans proliferated allowing almost anyone to get a loan to buy property
  • Builders and developers become over-confident and a high level of construction leads to an oversupply of properties and higher vacancy rates
  • Housing affordability becomes stretched
  • Speculation is rife with a new generation of investors getting involved in property hoping to “get rich quick”
  • The RBA tries to dampen speculation by raising interest rates
  • A credit crunch occurs and banks tighten their lending criteria.

The DOWNTURN PHASE

Booms are always followed by a downturn or slump phase that is often characterised by an oversupply of properties due to the over-exuberant activity of builders and developers during the preceding boom.

This causes increasing vacancy rates and decreasing investment returns.

Property prices stop growing and sometimes drop by around 5-10%. Australian Money In Wallet On Real Estate Background

This phase lasts a number of years, but prolonged booms are usually followed by a longer and deeper slump phase with a greater likelihood of prices falling further.

During the slump, property is out of favour in the media and investors often struggle with decreased cash flows, higher interest rates and stalling values.

This is the time many consider selling their properties.

However, when they do this in a falling market with few willing buyers, they exacerbate their problems and crystallise the loss in value of their properties.

Near the end of this phase of the cycle interest rates slowly drop as the RBA tries to stimulate consumer confidence and the economy, because the prevailing sentiment is often fear and desperation.

Around this time the banks becoming more “investor friendly” and start loosening their lending criteria.

The STABILISATION PHASE Interest Only Lending Australia

Eventually the market moves on.

Falling interest rates, rising rents and pent up demand during the slump phase set the stage for the next property upturn.

But prices don’t suddenly start escalating wildly.

The downturn is usually followed by a period of time when buyers tentatively move back into the market soaking up the properties for sale, but as the number of buyers and sellers is in rough equilibrium, property prices remain flat or only move up slowly.

This is a time of great opportunity, yet it is not easily recognised by most investors, despite it still being a buyer’s market.

The UPTURN PHASE

In time the cycle moves on and eventually we move into the upturn phase when vacancy rates slowly fall, rents start to rise and property values begin to increase.

At this stage of the cycle property is generally affordable, returns from property investments are attractive and home buyers and smart investors begin to enter the market.

This is obviously a great time to buy property and while professional investors take advantage of the opportunities in the upturn phase, many beginner investors take longer to be convinced that property is a good investment.  3 toxic habits that sabotage your property investing

However, this is a time of great opportunity to get set for the property boom that will eventually follow.

This is also when many builders and developers begin work on new development projects, aiming to have them completed by the late upturn or boom phases of the cycle.

At the beginning of the upturn phase of the property cycle interest rates are usually low and it is easier to get finance.

As the upturn phase rolls on (remember this stage could last three or four years) more investors and first-home buyers enter the market as conditions seem more favourable.

They see property values increase and are concerned that they may miss out if they don’t buy a property.

While property values increase, they tend to do so much more gently than the “heady” price rises of the boom phase, which is just around the corner.

At the end of the upturn phase real estate prices will have risen substantially and property starts to become less affordable to many Australians.

And…..we start all over again.

WHAT CAN YOU DO TO STAY AHEAD?

As signs point to softer growth conditions for Australian property over the coming months, independent professional advice and careful consideration will be as important as ever in navigating Australia’s varied market conditions.   

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If you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole.

Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.

Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.

Please click here to organise a time for a chat. Or call us on 1300 20 30 30.



from Property UpdateProperty Update https://propertyupdate.com.au/understanding-property-cycles/

Are you making these seriously fatal property investment mistakes?

You may not even be aware of it, but chances are, you could be putting your financial future in jeopardy by making these deadly property investment mistakes. mistake

We’re not talking about the classic mistakes such as not doing your research before buying.

In fact, it’s in doing the research that could cost you the biggest financial pain.

That’s because this where a lot of investors commit their biggest missteps.

Therefore, becoming aware of these mistakes is important if you want to avoid losing your hard-earned cash.

4 deadly investment mistakes you must avoid at all cost

Investment mistake #1. Making a strategy fit an area

Having a strategy is important if you want to succeed as an investor.

investor-enquiry-form

However, rigidly sticking with the strategy rather than focusing on the result can have costly consequences.

For example, if you’re pursuing a renovate for profit strategy and are looking to invest in Moreton Bay in Queensland, you’re likely to be targeting 30 years old unrenovated homes.

But this type of property isn’t what the demographics of that area want.

These people have dual income, high-paying jobs.

They want a 4-bedroom, 2-bathroom, double lockup garage house.

They want a relatively brand new or up to five-years old property, not a renovated 30 years old property.

Therefore, it’s crucial to really understand the demographics of an area and what’s in demand to ensure you’re buying the right product.

Investment mistake #2. Becoming emotionally attached to an area or property type

It happens to many of us.

You come across a property expert extolling the big profit potential of an area and we jump onto the bandwagon. stress emotion buying house

For example, if an expert recommends Moreton Bay and suggests looking at units or townhouses, you’d probably want to target them too.

So you go into the area having already developed a personal preference towards townhouse or units because you’ve been told of its potential.

But based on a research on the demographics of the area, it shows that a 2-bedroom unit will be a death sentence.

The demographics aren’t keen on this type of property.

They want relatively new, 4-bedroom, 2-bathroom, double lock up garage.

To ensure you avoid this mistake, look at what’s in demand in the area and understand your potential buyers and renters, not blindly following an expert’s recommendation.

Investment mistake #3. Relying on partial adviceprop-investment-featured

It’s human nature.

When it comes down to choosing between paying more for something better and getting a cheaper but lesser version, most of us will opt for the latter.

Although we know instinctively that you get what you pay for, we’re still attracted to the short-term “savings”.

This is especially true with property investment advice.

Unfortunately, trying to save money by relying on cheaper but incomplete advice could cost you more over the long term.

That’s because you end up filling the gaps with your personal preferences, emotions or skills and you’ll get it completely wrong.

If you have to rely on a report or recommendation, make sure that it gives you all the information you need to make an informed investment decision and leave you filling in the blanks.

Investment mistake #4. Following the herd/swarm Property investment

There might be safety in numbers, but when it comes to investing in property, more investors in an area doesn’t always spell profits.

Granted that there are benefits of banding together such as the ability to buy at a lower price, there’s equally a huge risk with this strategy.

Joining the herd creates a lot of competition in that market.

A lot of investors in an area means higher competition for renters and for buyers when it’s time to sell.



from Property UpdateProperty Update https://propertyupdate.com.au/are-you-making-these-seriously-fatal-property-investment-mistakes/