Goldbugs... what will you do with your gold? What's the point of holding gold?; Will you eventually convert it into real money, or just hoard it for ever?
Hmm. In my view there are PI strategies that run the gamut from purely speculative to being about as non-speculative as any investment can get.
Property can be bought and financed at any level of gearing from 0% to about 80%, so there is no requirement for negative gearing at any level of yield. If you mean it is pretty hard to find something residential that has no glaring faults that will cover interest and expenses in the first year at 80% (or even 60%) LVR, then I agree completely. In my experience, if the gross yield is above 7% there is a very good reason such as:
a) High costs which give you a "normal" nett yield before interest. b) It is tied up with management contract and is for serviced apartment type business. Income growth for this kind of use is at least a percentage point lower than long-term rentals, and income is far more vulnerable to the business cycle. The ones I have actually done the sums on would require a gross yield approaching 20% to be attractive to me. c) It is in a high-risk or low-growth area.
The market is pretty efficient.
I always find this reasoning a little strange. The main reason I see to speculate on any hard asset (including - perhaps especially - PMs) is as a hedge against inflation. You hear all kinds of justifications including rants about the inherent worthlessness of fiat currency, etc etc, but most of the arguments boil down to this. One day your fiat currency will be worthless and my {gold/silver/farmland/oil futures} will still be exchangeable for what I need. Essentially you are taking a position that will do well if the currency drops in value. But taking on debt is by definition taking on a short position against the currency and land at least is a pretty hard asset so leveraging property is a 2-way hedge against inflation. Moreover, what both the holders of PMs and the holders of leveraged property fear most is a spike in interest rates - so it seems to me that leveraged PIs and holders of PMs benefit from and get slaughtered by much the same economic conditions.
And if you want to be unleveraged, I don't see a huge difference between someone who has $1M worth of physical gold and someone else who has a $700k house and $300k worth of 30-year bonds that pay the holding costs of the house with their income. Except that the guy with the house can sleep at night and has somewhere to sleep at night of course.
Gold also has the added property of being a tail hedge against certain kinds of chaos, with physical gold being the best tail hedge, running right down to leveraged ETNs that speculate on gold miners which would probably be the worst. I would never criticise someone for having a tail hedge once they reach a situation where they have gains to protect. It's like insurance. But tail hedges by their very nature cost you money in any non-disaster situation. You'll never get rich buying tail hedges because they are bloody expensive. (Actually, this is not quite true. Paulson and a few others got very rich buying tail hedges, but they spent dozens of man years searching for mispriced tail hedges and they had developed a risk model that almost nobody else had which turned out to be the correct one.) Actually lots of investors are buying up in areas of Brisbane that got flooded because anyone who was around in 1974 knows that the flood-risk discount decreases with every year you don't have a flood, and there is no flood-risk discount on rent.
It is an arbitrage opportunity that comes to Brisbane about once every 30-40 years.
MIW
Agree with most of your comments, but to get any sort of yield one needs to leverage up to the max taking advantage of low interest rates and if it was me, i'd try locking them in. Then once you're locked in to a mortgage it seems it take a few years for a property to start paying for itself, as in the rent covering mortgage interest and expenses. I presume we are talking net yield, as in how quick we can get our capital back that we have put down on a property.
How much leverage one is willing to take on, its very easy to make it big, but just as easy to be whipped out. However, I'm of the opinion that both central banks and governments will keep pumping the system up with cheap credit to try prevent a correction in the system, driven by the US, I guess the main difference I see down the line is the US going to war and/or having a currency crisis, hence my position in gold.
Completely agree with you on gold. Gold is one of the most liquid/heavily traded currencies out there, should I decide to sell tomo or head to anywhere in the world, I can trade if for fiat. I guess if I didn't think the US was going to kick of, I wouldn't be holding as much pm's as I am and re evaluate my investments. However, if I was to invest in property, I'm strangled should the fertiliser hit the ventilator. To hedge this issue, I would consider buying property in Perth in a nice area, as should metal prices start rising again, Perth should do well. However, as I look for an investment property here, prices are staggering high in comparison to yields. Accepting negative yields is worse than speculating on gold, in my opinion of course.
I would enjoy getting involved in a thread about "property yield", as its probably not the most suitable place to discuss it here. I might start one later or over the next few days.
I don't consider myself a "goldbug". I was able to take advantage of a collapsed sharemarket at the right time for me, a poor time for many before me. For me it was right place, right time. This has allowed me to build up a portfolio of dividend paying shares as well as gaining some could capital growth on shares that have recovered quite well since the big drop.
I have some exposure to precious metals through various miners and some physical silver bullion. (some I sold a tad early at $40, some I still have)
My wage plus dividends minus fairly frugal lifestyle = saving faster than house prices are rising, especially around area I live.
Eventually I will buy a property (maybe sooner than I intend, we looked at a small acreage north of Melbourne that the better half really likes)
I do feel confident that precious metals (especially silver) will outperform housing market in the short to medium term. I would never sell everything I own to buy silver though.. I am not infallible, I could be wrong but I am willing to have some exposure to it.
At some point I will sell out of the PM miners and use the monies towards property. I will retain and continue to add to the share portfolio too as well. Even with our new TA in charge and saying he will take some of the imputation credits away. Getting dividends into the bank account most months of the year is a nice thing.
There are some people who seem angry and continuously look for conflict. Walk away, the battle they are fighting isn't with you, it's with themselves.
The first lesson of economics is scarcity: There is not enough of anything to satisfy all who want it. The first lesson of politics is to disregard the first lesson of economics. ~ Thomas Sowell.
Who was the fool, who the wise man, who the beggar or the Emperor? Whether rich or poor, all are equal in death.
Actually lots of investors are buying up in areas of Brisbane that got flooded because anyone who was around in 1974 knows that the flood-risk discount decreases with every year you don't have a flood, and there is no flood-risk discount on rent.
It is an arbitrage opportunity that comes to Brisbane about once every 30-40 years.
Correct, but goldbug is far to stupid to consider this or recognise the opportunity
goldbug
9 Sep 2013, 08:42 PM
Now stop trying to derail the thread, it's about GOLD! And were sick of hearing you spruke up property here. There are plenty of threads for that.
Actually, it was you that started trolling about property in post 4 and then started trolling again in post 62
Obvious troll is very stupid and...............boring
Ignore posts by The Whole Truth · View Post · End Ignoring The forum fuckwit goes RRRAAARRRGGHHhhh - But not a fuck was given..................by anyone.
This is what he is talking about, and next year it could be Sydney or it could be Perth.
House prices fall every few years - just part of the cycle.
No doubt Sydney will fall again in a few years time after this current boom is over.
You laughed at the thought of property declining by 3 percent in a year and I showed you up with the example from a capital city. Don't you even read what you type?
Quote:
conork
9 Sep 2013, 06:47 PM
If I have a property worth 100k, its depreciating by 3-4% per annum
What are you doing with it to make it depreciate by so much?
Contaminating the land with asbestos?
Did a nuclear plant open up next door?
O BTW, there will be no more BOOMS for a while, The RBA head said it and I think he might know a little more about the future than you.
Shadow was hopelessly wrong about the Gold Bull Market. What else is he wrong about?
You laughed at the thought of property declining by 3 percent in a year and I showed you up with the example from a capital city. Don't you even read what you type?
Incorrect. I questioned the implication made by Conork that property depreciates by 3-4% per annum...
'If I have a property worth 100k, its depreciating by 3-4% per annum'
The implication by Conork was that property generally tends to depreciate by 3-4% per annum, and is therefore a bad investment.
That's what I was questioning. Conork understood what I was getting at, and responded appropriately and sensibly.
You on the other hand mumbled some irrelevant nonsense about a decline in Canberra in one particular year.
Do you even try to understand what is being discussed before stumbling in to the conversation, and going off half-cocked?
Quote:
BTW, there will be no more BOOMS for a while
There is a property boom happening in Sydney right now Ted, where my IPs are located, and where you sold your home a year and a half ago, just before prices rose 10%.
Groan Have they let that wanker out of the pshyc ward again? PWNED with MORONbah and now PWNED with gold
Expect even more crazy as he goes into FULL POTATO mode again.
Ignore posts by The Whole Truth · View Post · End Ignoring The forum fuckwit goes RRRAAARRRGGHHhhh - But not a fuck was given..................by anyone.
Agree with most of your comments, but to get any sort of yield one needs to leverage up to the max taking advantage of low interest rates and if it was me, i'd try locking them in. Then once you're locked in to a mortgage it seems it take a few years for a property to start paying for itself, as in the rent covering mortgage interest and expenses. I presume we are talking net yield, as in how quick we can get our capital back that we have put down on a property.
Hmm. The yield is essentially your EBITDA, and it is independent of leverage. Leverage is what you use to increase your ROA, and interest is a tax on that. So leverage is by no means a requirement to make money.
You make money because the NPV of your rental income is geometrically increasing and the NPV of your interest cost is geometrically decreasing. If either of those conditions does not hold, then you will lose money. This is the same profit driver as you have with dividend growth investing or an LBO or any investment that is initially capital-intensive and then gives you a growing stream of income from a non-consumed asset.
Leverage will increase your overall return as long as the interest rate is low than your NPV deflator, at the cost of adding cashflow risk if you have an interest spike. (Because interest rates typically rise and fall with inflation expectation, as far as I can work out, as long as you can always meet interest, rates rising and falling does not impact your real return very much over the long term.) HOWEVER - taking a punt and locking in interest at what you think is the bottom of the cycle can pay big dividends - but it is just an added speculatory play. For the record, I have fixed a fair bit of my debt because unlike many I think the next move is probably up. Perhaps more importantly, locking in interest rates means you have one less risk for a while and frees up capital that would otherwise be needed as a buffer to do other things.
Quote:
To hedge this issue, I would consider buying property in Perth in a nice area, as should metal prices start rising again, Perth should do well. However, as I look for an investment property here, prices are staggering high in comparison to yields. Accepting negative yields is worse than speculating on gold, in my opinion of course.
As far as I can tell, the worst sin you can commit is to buy an IP at a yield which is below the long-term trend for the location in which you buy and the type of property which you buy. In this respect, local knowledge is important, because that long-term trend is different in every location. So for example in the suburbs I follow, you should *never* buy with a gross yield below 5%, and you should be aiming at 5.8% to 6% gross for a blue-chip renter. But those numbers would be lower in Sydney and Melbourne, higher in the Brisbane CBD, and higher again in Rockhampton or Toowoomba. This is not so much because of the extra rent, but because as the yield returns to trend, which they always seem to, yield going down pushes up the capital value and vice versa. 1% on yield is about 15-20% on capital value.
On the forum we often hear from people who are getting very cheap rent on good accommodation. As far as I can tell this is because there are quite a few people who upgrade and then keep their old house which is unsuitable as an IP on as an IP. The longer they keep this strategy the more they will lose. They should sell the old house and buy something that is a genuine investment proposition. (Unless there is some good reason for holding on like an impending rezoning or whatever.)
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.
Forum Rules:
The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.
Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.
Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.
This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.
Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ
Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy
