Assuming a 7 Year property cycle; expect a time of no growth followed by a time of of little growth (totalling about 5 years). Depending on how far prices rose during the previous 2 boom years; the first 2 years of the new cycle may even see a softening or correction of prices from off the back of the high point in the last boom.

Game, Set and Match

While external factors, like the economy and consumer sentiment etc will artificially drive property prices up or down for a time; the law of supply and demand will be the final jury. Water will always find it’s own level.

To win a tennis match you must first win more sets than your opponent. Just because you lose a game or two it does not mean you will lose the match. In fact winning is often more about being mentally tough and being able to turn around a losing momentum.

So it is with property. An investor following a buy & hold strategy; such as the mrd set ‘n’ forget for busy people method of wealth creation will win his or her match!

Why?

Because persevering through a complete property cycle pretty well guarantees a generous capital gain (assuming the price of the initial purchase was fair, the location favourable and it’s a residential property).

Having a bad experience with a property manager or going without something because the last rate notice came through at a terrible time… is like losing a game. That’s ok, however, because if you just “keep playing”… the match has been rigged in your favour!

Stupid Things To Avoid In Property Market Cycles

• Deferring a property purchase until the market has almost peaked
• Selling a property when the market value for it has bottomed out

Clever Things To In Property Market Cycles

• Have all your properties revalued and your lines of credit set up against their increased valued when the market has almost peaked
• Look for buying opportunities when the market has bottomed out

Sound Fundamentals

The best indicator of sound fundamentals is the differential between permanent population growth and the supply of new property. I say permanent because transient population growth is by its definition unsustainable in the long term. Mining towns in recent history enjoyed increasing record metal prices… and thus mine expansion. This increase in demand pushed property levels upwards in boom proportions… but the population growth is transient. Metal prices are now retreating, mines contracting, tenants are leaving town, rents are dropping and housing values falling.

Gold Coast Property

Queensland’s Gold Coast is an area with sound fundamentals. Besides favourable infrastructure and lifestyle options, each year the net migration into the Gold Coast is between 13,000 and 15,000… and they all demand immediate housing!

Based upon an average household occupancy of 2.6 (2004, Gold Coast Bulletin) between 96 & 111 new homes are required EACH WEEK to service the population increase alone. I might add that nothing near this amount of development was coming onto the Gold Coast market prior to the global downturn; now with developers either out of business, scared to build now or just unable to secure bank funding… it will be a long, long time before the housing shortage problem can begin to be addressed.

In light of such strong fundamentals underpinning Gold Coast property it’s hard to miss the opportunity glaring at you… especially in the current climate where we have been able to negotiate some great incentives from the developers on behalf of our clients.

There are a number of markets that we have identified as being ideal, for one reason or another. It makes sense to secure an investment purchase now… much the same way as it does shopping in the post Christmas sales.

Finance Structure & Cash Flow Health Check

Our recent offer to complete a complimentary, no obligation Finance Structure & Cash Flow Health Check has been widely taken up. If you would like us to undertake this same service on your behalf please click the link below to send us your contact details.

More Info…

http://ypim.com.au//3

Yes please; I would appreciate a complimentary Financial Health Check

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Happy Investing,

Nick Lockhart

mrd Customer Care Program… because investing is personal

1. How good will your portfolio be if we have another world war?
2. How good will your portfolio be if we have a worldwide recession or depression?

Well, with regards to Q 1, I still have no concrete answer for, and hopefully never will. With respect to Q 2, however, I can now (i.e. only now) say from experience… “It’s all ok”!

My portfolio now numbers 13 properties. When interest rates were 9% plus it was of some concern. We would have remained OK for a couple of years at those high rates because the equity we have built up provided us with a buffer (safety net).

Now every 1%  rate cut puts an additional $35,000 a year in my pocket. We’ve had 4% slashed from our rates in recent months (less what the banks failed to pass on) and the season of low interest seems set to continue for some time.

I use a separate line of credit for my property expenses (i.e. rates, body corp and so on); only paying interest charges from my cashflow. Interest rates are falling and rents are rising so cashflow is looking better and better. I don’t have to work, so while the world “financial crisis” works its way through the system; affecting us all, I remain content and comfortable holding a large property portfolio.

Increasing Population + Shortage of Rental Properties
= Low Vacancy Rates = Rental Increases

OK; ‘so far so good’. With cashflow under control, there’s no stress in us holding a portfolio of 13 properties. BUT, what about growth and the lenders?

Certainly, growth has been flat over recent months but prices have not dropped in most areas. An article in The Australian last month said:

“In fact, the latest RP Data-Rismark Index results show that Australian house prices declined by just 0.8 per cent in the 12 months to October this year, and increased during the most recent three months”.

They are talking about the country as a whole (the good, the bad & the ugly); whereas certain areas have outperformed others. As an investor I discriminate against much property and only accept that which I believe will perform better for me.

I have always accepted that property values travel through cycles. I have every confidence that the short supply of property will mean that the growth in prices will/must kick in again. NB: We were about 80,000 dwellings short for 2008 and the Australian Bureau of Statistics  expect around 100,000 too few to be built this year; with the undersupply continuing around those annual figures till 2018 at least.

The mrd set ‘n’ forget, for busy people TM system that Nick promotes has worked for me personally; in good times and in bad and I have no reason to believe my ongoing confidence will be met with any disappointment! Why? Because I believe the fundamental law of “supply and demand” will ensure any outcome other than that which I expect, will be nothing more than a short term aberration.

For the benefit of those who have not spoken with me, let me explain a little of my personal strategy. It revolves around drawing on equity from my portfolio. For those of us in “retirement”, that means using low-doc or no-doc loans; not easy to secure with competitive rate at the moment.

What next?

My plan; or perhaps “flukish luck” (ha, ha) when Marion and I contracted to buy our 13th investment property; included an “ulterior motive”. We bought a top floor, 3 bedroom apartment adjacent to the Robina Town Centre. We thought we may eventually like to downsize and move into this ourselves.

We are now very close to having a number of our properties revalued so as to clear the security from our owner occupier. This is to allow us to then change the security supporting some of my loans away from my own home onto some of my earlier investment properties. With our own home unencumbered (and debt free), we will sell up, pocket the lot and move into the 3 bedroom apartment.

I accept new valuations at this point in time will not be great; but that’s fine, our goal is to simply clear the security from our owner occupier so when we sell we remain in control of all the cash we receive. We will do this without having to qualify for any new loans. No need to be concerned about the availability of a low-doc or no-doc offers – we won’t need either!

I already have an offset account set up for our 3 bedroom apartment. Therefore, after selling we will have $550,000 clear (conservatively) to put into an offset account that sits against (what will be) our new principal place of residence. NB: Selling is something we encourage you rarely ever do. In this instance, it allows us to fund the retirement we want. Because it has been our principal place of residence there will be no capital gain tax. A tailored solution that works for us, even in the face of the global credit crisis!

Some may ask: “Why don’t you simply pay out the loan on your new apartment instead of keeping the debt and putting what funds you get from the sale into an offset account”?

Good question! “Because to do so would mean that I would immediately lose control of the $550,000. If I wanted to get at any of the equity created in the new unit (by paying it off), I would have to go through the exercise of making a fresh loan application; and risk being knocked back etc, etc.

My strategy to have the existing debt on the unit 100% offset still ensures we have a $ZERO (non tax deductible) interest bill, while still allowing us the freedom to draw on the $550,000 as I need it over the next “however many years”; without the need to prove serviceability! Now when you add to that the two hundred plus thousand dollars we currently have available in other lines of credit, one can begin to see that no matter how tight credit for a retiree may become, we will be pretty much set for a number of years to come.

The “crisis” will pass, however, in the meantime a clever strategy and proper financial structuring will allow us to avert any interruption our retirement plans may have otherwise suffered. Then, when things get back to normal and my property portfolio  AND RENTS double in value again we will revalue the lot, increase our credit lines and continue to enjoy our retirement (with growing asset & income base). I am a month off 59 now. When Marion & I started on this journey I was about to turn 50 and I have been self-funded now for 3 years.

7 years + 13 Properties + A Financial Crisis = Never Work Again!

I can hear the voices screaming from all around cyber space “It’s ok for you! You have a significant property portfolio”. Compared to most maybe, compared to others… I’m crawling! Guess how you get hold of a large property portfolio yourself?

Start with a small one… but START!

Now is a good time to do it. Did I say “good”? I see the current “Perfect Storm” as being a ‘once-in-a-lifetime’ opportunity. Interest rates the lowest in 45 years (and falling); with property prices very affordable AND a rental crisis that’s only going to get worse.

My message to anybody who over the past years, didn’t get started because of their “WHAT IF” questions is: This works; so get started!

If your “WHAT IFS” are still plaguing you then maybe you should do nothing but sit tight for a few years and ask me again. I suspect, however, that I will have the same answer for you then.

* Please note: I am not a financial advisor, accountant or a finance broker – I’m just a very comfortable self funded retiree. The examples and opinions above are a compilation based on my own personal experiences, both in creating a $4.5mil property portfolio, starting with only $50k equity and also in helping a large number of people achieve similar goals of million dollar property portfolios. If unsure then consult your own accountant; hopefully one with some property experience and a personal retirement plan that is working. Financial advisors, in my opinion, rarely understand or recommend property, as their commissions come from other investment products. It should be a case of “don’t believe what people say, believe what they do!”

To ask me any questions or arrange a chat regarding how my chosen retirement plan may work for you, click here

Would you like me to guide you through an mrd complimentary & no obligation “Finance Structure & Cashflow Health Check”? Then simply complete the online secure form and I’ll be in touch with you next week; click here

Happy Investing,

Martin Bell
mrd Customer Care Program… because investing is personal

Now things could happen over the next few days to change that. For example, the Federal Government announcement concerning the next round of stimulus to be announced. Factors such as this cannot be properly considered at the time I am writing this.

Initial evidence suggests the Federal Government’s cash handouts in December ’08 fell short of having the desired effect. It needs to be noted, however, that official reporting on Christmas spending last month has not yet been released.

Assuming the cash rate will move down by another 1.25% (to 3%) by early March… I see two options before the RBA when they meet next Tuesday:

1. Move rates down by just 0.5% in February while waiting for official figures to indicate exactly how much impact the 1st stimulus package had on Christmas spending. This option would also allow the RBA time to digest the detail of the 2nd stimulus package and assess its likely impact. NB: 2nd stimulus package will be announced soon… possibly this week end.
2. Move rates down by a full 1.0% in February and not risk losing another month whereby the economy could be further stimulated. If they take this option and risk “over cutting” rates next Tuesday they can then put the brakes on a little and do less the following month.

Of course there could be any number of other options and the net effect is that the next two months could see the official cash rate fall below 3%; that is certainly not out of the question.

Personally I suspect the RBA will view their responsibility of overseeing monetary policy with much caution next week and attempt to make a significant contribution to boosting both business and consumer confidence quickly.

At this time our economy is quite fragile and to ‘play it safe’ would seem the most responsible course of action the RBA could take. Managing inflation is no longer of primary concern. Even so, inflation has been taken care of anyway. Falling commodity and labour prices has rectified any inflation problems we were considered to have a year ago… adding to the argument for lowering interest rates.

Have you heard it said that “in every adversity lies the seeds of a bigger and better opportunity”?

This is not just a string of nice words, but a profound truth. The bigger the adversity, the bigger the opportunity. Assuming we understand that influences of “supply & demand” and “herd mentality” on values (even though in the short term aberrations may occur); we will be better positioned to SEE the bigger and better opportunities available now.

• I believe there are more pessimists than optimists; it’s easier to be negative just as it’s easier to grow weeds than flowers
• When it comes to matters of finances, more people are more influenced by their emotions than facts
• If “everyone else” is doing it… so will we
• In Australia we have a growing demand for housing continuing, with a very limited supply
• Confidence is at an all time low; albeit without justification in many instances
• Some developers have gone out of business, others have put the brakes on until they see the property market pick up… many of the rest would still construct if they could find a bank to lend to them
• If the source of this supply problem was fixed overnight, it would take years before the solution worked through the system resulting in sufficient numbers of additional completed housing
• Those who hold property today can look forward to the benefits of significant capital gain… resulting from the next up-cycle
• Up-cycles follow seasons where housing is considered affordable
• With interest rates quickly falling (and to levels most Australians have never seen in their lifetime) and rents being forced up by the growing demand (with lack of supply for years to come) housing will soon be considered VERY affordable

The numbers look really good now and are only going to get better. This gives me confidence that broadly appealing residential property, in sought after locations… will, over the next few years, grow significantly in value. The doomsayers and their followers will have about as much credibility as a cult leader and his key disciples.

My Suggestion:

Assuming you have had an analysis run on your personal situation and understand the associated costs and responsibilities of both buying and holding real estate… now is a fantastic time to buy – i.e. for those who subscribe to the mrd buy/hold strategy (if you’re a property speculator, trader and/or renovator – “good luck & may the force be with you” – ha, ha)

My property portfolio is just about always adding to my wealth. Either my property values are increasing; and adding to the amount of equity I have to work with… or the rents are increasing; and adding to my income base. Remembering that to acquire more property we must demonstrate to our lender sufficient equity and income… I am always winning with real estate.

Safety In Numbers:

People feel safer in numbers; that’s why the herd mentality is so prevalent… but recent history has shown that if you followed what was popular you may have lost half your super or shares etc. I believe real opportunity (like risk) comes from our knowledge (or lack thereof) and our willingness to “swim against the tide” of popular opinion.

Interest Rates & Holding Costs:

Currently the CBA offers the lowest professional package interest rate; just 6.04%. If I am right and rates come down by another 1.25% (or more) over the next 5 weeks… and even if it were not all passed on, we would be looking at being able to borrow for about 5%!

That means the total interest bill on a property that cost $400,000 (assuming you borrowed 100%) would be more than covered by a weekly rent of $385. Now I know that there are council rates, body corporate and rental management fees etc to come from this… but so too there are tax deductions and the strong likelihood of more rent than $385 a week. Watch how, when the numbers change so much in such little time, even the herd will see the opportunity! And when they do… we will have our next up-cycle.

Click here to take us up on our complimentary, no obligation offer of an mrd “Finance Structure & Cash Flow Health Check”.

Happy Investing,

Nick Lockhart

mrd customer care program… because investing is personal

Our stocklist includes some fine examples in Queensland, Brisbane and the Gold Coast.

We believe the Gold Coast has exceptional potential and still looks cheap, but some clients find the Gold Coast a little above budget, so we have spent time sourcing some wonderful opportunities further north.

We have unearthed some fantastic opportunities in Northern Queensland – Cairns, Townsville and Hervey Bay – all with affordable prices, generous rental yields and the potential for serious capital growth.

In the current round of Web Seminars we are offering, I highlight four key factors that are a MUST… if you expect to draw any credible conclusions.

1.    Record Population Growth
2.    Investors Have Fled The Market
3.    Home Ownership Unattractive
4.    New Construction Has Stalled Badly

1. RECORD POPULATION GROWTH

Australia is currently experiencing the fastest population growth in 200 years. Our population is predicted to grow by 350,000 this year for the first time in over 200 years. That represents approximately the combined total population of Geelong, Cairns & Bunbury; or the whole of Canberra.

The 1850′s Gold Rush years, Post World War 1 (1919 onwards) and post World War 2 (1946 onwards) saw our 3 previous population explosions. Today we see a similar pattern emerging; i.e. rapid and prolonged growth, too few workers and pro-immigration government policies.

Record population growth means a significantly stronger demand for new housing! Given our record numbers of new migrants will generally rent for a season, demand for rental properties will continue to strengthen.

2. INVESTORS HAVE FLED THE MARKET

Rising interest rates in recent years have squeezed rental yields making property look unaffordable. Add to the mix a booming stock market (averaged over 20% per year between 2004 and 2007) and one can see why property has not been the preferred investment vehicle of recent years.

Since becoming familiar with the term “subprime”, seeing the global credit crisis unfold… and hearing of property values in the US & UK falling by 30 & 40%, many would-be-investors have opted to stay on “strike”. It’s fair to say that since the highs of mid 2004 only the ‘brave’ have continued to invest in property.

Investor demand accounts for about 50% of all new housing starts and about 70% of unit starts. Therefore, that investors have fled the market means significant negative impact on the supply of new housing and increased demand on existing rental accommodation.

3. HOME OWNERSHIP HAS BEEN UNATTRACTIVE

As with investors. the housing affordability barrier, rising interest rates (& general living costs) and of course the US initiated subprime crisis has left many would-be home owners lacking the confidence to purchase.

Scared, priced out of the market, unable to secure funding or unable to service a loan? regardless of the reason why new home ownership has been unattractive; the result has been that many renters in recent years have simply continued to rent. This has placed further pressure on existing rental housing stock

4. NEW CONSTRUCTION HAS STALLED BADLY

Since 2005 the absolute number of completed residential properties has fallen and they are forecast to continue falling in 2009. The US subprime crisis cemented this downward trend in demand for new properties. Add to that, in recent years we have seen the high profile bankruptcy of some large developers along with massive financial pressure on many smaller developers. The cost of finance has skyrocketed for developers… i.e. if they can find a lender who will back them. Understandably, developers are very nervous… many have simply shelved their new projects until such time as they see clear evidence that investors have returned to the market.

Developers going broke, developers shelving projects and/or developers unable to secure funding means new construction has stalled badly and as a result greatly reduced the supply of new property further adding to pressures on existing housing stocks.

DISSECTING THE EVIDENCE

• FACT: We are experiencing the greatest housing shortage in 200 years
• FACT: Because of the new Federal Government’s immigration policy, we are experiencing the strongest population growth in 200 years
• FACT: Since about mid 2004, broadly speaking investors have fled the market
• FACT: Since about mid 2004, broadly speaking home ownership has remained unattractive and renters have continued renting
• FACT: Since about mid 2004 the construction of new dwellings has stalled badly
• FACT: In mid 2004, national rental vacancy levels were about 3.5%. This level is considered a balanced market. Rental vacancy levels have dropped to below 1.5% now and are expected to continue to drop to historical lows of between 0.5% and 1% in 2009. These levels represent a stressed market
• FACT: When the demand for rental housing grows at a faster pace than supply, increased demand can be offset by diminishing vacancy levels
• FACT: When vacancy levels reach just 1% it is said that we have NO VACANCY, as the 1% represents the few days between tenants moving and carpets being cleaned etc… prior to a new tenant moving in
• FACT: Therefore, once vacancy levels fall to 1%… there is no room left to offset increasing demand by diminishing vacancy levels
• FACT: When demand increases and supply decreases and vacancy levels are already stressed; i.e. no vacancy… market forces mean rents have to go up… and significantly where population growth is significant
• FACT: Interest rates are the lowest they have been in years and are expected to reach (near) record lows by mid 2009

Now you have the FACTS, rather than simply “opinions”; may I suggest you draw your own conclusions as to what might happen with Australian property in mid to late 2009?

• With the cost of renting about to soar and the cost of ownership dropping significantly (i.e. rental incomes up and interest charges down), what do you expect the market will do?
• With stock market volatility and uncertainty and interest earned on cash deposited dropping away, what do you expect the market will do?
• With serious increases to the first home owners grant, what do you expect this group to do?
• Given rental properties vacated by first home owners will not produce a glut… because vacancy levels are at an all time low (stressed market) and the population is growing by the size of Canberra each year, what do you think the market will do?

Can I go out on a limb and tell you what I think; I may be wrong, but I don’t think I am?

1. I expect rents to soar in 2009
2. I expect interest rates to continue to drop next month and in 2009
3. I expect confidence to come back to the market, drawing back owners and renters alike
4. Given there is a lag of a few years from when developers decide to build again and new stock being ready to live in… I see no relief for the poor tenant for at least a few years
5. I also believe that the combination of all that I have just outlined will result in the next property price surge

So, in summary…

Those who have been building a property portfolio as their preferred vehicle for funding their retirements (NB: assuming they bought the right residential property in the right areas) are soon going to experience the property investors trifecta:

1. Rising incomes (rents)
2. Falling costs (interest)
3. Increasing equity (values)

I would love to address the subject “We are not the USA” and compare the FACTS relating to how we are different and why what happened there will not happen here; but I will save that for another day.

May I invite you to register your interest for either our next FREE Web Seminar this Wednesday evening… or if you let us know what other time(s) best work for you, we will run them according to demand CLICK HERE.

Happy Investing,

Nick Lockhart
mrd customer care program… because investing is personal

1. GREAT presentation by croaky Nick! Rod, thanks for getting me in on time! Chris V
2. Congratulations on a well presented seminar that demonstrates the importance of well researched facts without the emotion frequently seen in the mass media. We are now keen to buy before everyone else starts buying – the capital gain may as well be mine. Peter
3. Keep up the good work. Chris V
4. Hi Rod,
   Really enjoyed the webinar. It’s good to get the optimistic view with the research behind it, obviously no one knows exactly what’s in store but based on what has happened before now will probably go down as a great time to buy. I would love to chat about a plan going forward. Would love a copy of the DVD. Thanks for the follow up.
   Cheers
   Shane
5. Hi Nick, I have just listened to the webinar. It was great and I learned lots. Marion C
6. Congratulations Nick and to your team on a great Webcast.
7. Sorry Nick and Crew I am at a school board meeting tomorrow night however I do read everything you say with interest and I am glad I do. It reassures me that it is not all that bad.
   Regards Mark F
8. Thanks for the telecast, my understanding increased to the current climate of news and reactions.  It was well thought out and presented as to lead you to how you understand the drivers behind the market and trends of buyers and renters  Looking forward to doing business in the future – Les N
9. Hi Nick, thank you for the kind invitation, however I am at a company directors’ meeting in Brisbane at that time. I have an optimistic outlook on both the economic fundamentals and property, particularly in QLD. Best wishes for continued success, David
10. Thanks Nick very good session – ed
11. Thanks Nick I have got to get ready for work, great presentation, will talk soon – Greg H
12. Thank you mrd for your time and mentoring. An informative and positive session that has left me in the mood. Dale
13. Thanks Nick, I really enjoyed the seminar and am motivated to purchase another as per the ROYE I have.  The technology for the presentation was a little frustrating at times when the audio cut out.  Thanks, it was great, Mike H
14. Fantastic presentation Nick. Well done. – Tony
15. Should bring me closer to retirement!! Thanks – tony
16. Thanks Nick always very informative. You have put our minds at ease. Sean & Angela.
17. Well done Nick. Session was very informative. Harry & Brigitte
18. Hi Nick – good content – very informative. Greg

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Under Contract

Features of this property:

• Resort styled
• Gated community
• Set on a hillside overlooking Lake Orr
• Ideally positioned  between the shopping and commercial districts of central Robina and the emerging market square part of Varsity Lakes; adjacent to Bond University, right on the edge of Lake Orr
• One only 4 bedroom Townhome located on the central access driveway towards the rear of the complex. This position is ideal for those seeking an undisturbed lifestyle, yet with easy access to the pool gymnasium and entrance
• Being on the high side of the site ensures the balcony off the living area is an ideal place to spend a balmy summer evening
• Cool breezes and great views are just two benefits this property offers

A short stroll along the internal road to resort styled facilities include:

• Huge lap pool with beach entry
• Gym
• Sauna
• Outdoor barbeque pavilion

The desirability of this development includes the opportunity to cross a road and spend an hour or so on fantastic (and popular) walkways, boardwalks and bikeways that circle Lake Orr. Add to this being smack bang in the midst of the employment precincts of Varsity Lakes & the Robina CBD; one could almost justify leaving the car in the garage!

Have you ever wondered why the things that evoke the most passion or emotion in us… are usually known by four-letter words? Some of these include love, hate, fear, work and of course… Golf! Another emotion-charged four-lettered word that causes most of us to break into a sweat… is DEBT!!!

Mostly, we are conditioned to fear debt and avoid it at all cost. So why does debt propel one family to great riches… and another to poverty? How come the majority of wealthy people quite adequately manage large amounts of debt? Can debt be a positive thing to help us get ahead… or is it always a negative thing to be avoided? Before we can accurately answer this, we need to clarify our definition of debt!

The same single word… debt, can be used to describe three very different borrowing strategies.

Over the next three Fridays, let’s look these three different types of debt… and once and for all dispel any confusion surrounding this subject.

HORRIBLE DEBT (Type 1 of 3)

Annual income twenty pounds, annual expenditure nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Charles Dickens (Wilkins Micawber in David Copperfield. Chap. xii.)

HORRIBLE DEBT is the type of debt we enter into to buy things that depreciate (go down in value) and attract no tax deduction for having made the purchase.

This is the type of debt that we should ‘run and hide’ from! Horrible Debt, typically credit card or consumer debt is what the masses enter into every day… usually without a second thought! It was Horrible Debt that kept Wilkins Micawber in poverty… at least until he finally came to his senses!

Of course we must spend money to buy clothes, food, petrol, children’s education and so on… but just maybe… we should consider delaying the purchase of that wide screen plasma television, or the new lounge suite that we so desperately need (want)… until we can pay cash!

HORRIBLE DEBT is habit forming. If you are susceptible to this sort of debt… look back over your spending habits and notice the expenditure pattern and debt levels on your credit card. There is often a level people will continue to reach because they are comfortable with it… it’s all part of the Horrible Debt habit!

There are a lot of people who only clean up their credit cards when they get a bonus or maybe from the proceeds of selling something, like the family home. Because they have a debt habit it won’t be very long before the old levels are reached again!

HORRIBLE DEBT is debt that will keep people poor! Ask Mr. Micawber! The least amount of Horrible Debt we take on… the better!!

Over the next two weeks let’s dispel the myth that all debt is bad… and discover how if properly managed; debt is a vital part of most people’s journey towards financial security and independence.

Happy Investing,

Nick Lockhart

A History Lesson…

The worst excesses I have seen in the residential housing market was the selling of overpriced property through the 1990′s. Many people have heard of Two Tiered Marketing… where interstate and overseas investors paid a different price to what the locals were paying.

This practice came about as a result of greedy developers flooding markets, in particular the Gold Coast with more property than there was demand for. Driven by profit, rather than demand, the result was a massive oversupply of coastal high rises and Surfers Paradise became Renters Paradise. The law of supply and demand ensured that rents fell encouraging many disgruntled vendors to sell.

Property is so forgiving that even those who paid too much when they bought in the 1990′s, were still significantly better off by the early 2000′s.  Let me share with you a real life example of what happened to someone. I’ll call him Ian.

• In 1996 Ian bought a townhouse in Labrador (Gold Coast)
• Ian, who was from Melbourne, paid $140,000… which seemed  great buying as he was told at the time
• Ian soon after discovered that the real market value of his property was closer to $100,000 and that he had paid 40% over the top
• Today, 12 years on, Ian’s property is worth between $360,000 and $380,000
• Ian’s property has been cash flow positive for many, many years and “looks after itself”, financially. In fact it adds to his income
• Based on the more conservative value of his property today (i.e. $360,000, not $380,000); Ian’s capital gain is $220,000 or 157% on top of the 40% inflated price he paid
• Yes, Ian was ripped off because his holding costs (interest on loan) should have been less to begin with (and still less today)
• Yes Ian was ripped off because Ian should have a capital gain of $260,000 or 260%
• Ian had friends warn him against his decision. He bought, they didn’t and they later said “We told you so”!
• Ian would have preferred to deal with a more ethical company than the one he did. Nevertheless, Ian is very grateful that he did something as today his property portfolio extends beyond that one investment. He has surplus rental income and the capital gain and is well on his way towards setting his family up financially!

Remember these…

• The biggest risk you will take is to take no risk at all! Successful people will tell you that they failed forward. Failures in relationships, that we learn from, equip us to do better in the future… and failures in business, that we learn from, equip us to succeed at another.
• Learn from those who have achieved what you hope to achieve.
• Don’t blindly accept opinions; rather be considered and get the facts. It’s only when you are fully informed that you can make fully informed decisions
• Don’t let fear rule (any part of) your life
• Be fearful when others are greedy  and greedy when others are fearful - Warren Buffet

Happy Investing,

Nick Lockhart

The national end of month property indices report released today by RP Data & Rismark International confirms that the supply and demand imbalance currently being experienced in the Australian property market has placed a floor under housing prices, resulting in minimal value falls.

Based on the analysis in the report, this is most evident in the metropolitan areas around the country where record population growth has not been accompanied by new dwellings to satisfy the housing demand.

According to RP Data National Research Director Tim Lawless the property market has proven to be remarkably resilient with national dwelling values remaining positive over the 12 months ending August 2008. Over the three months to August 2008 there was a modest decline with property values down by just 0.96 per cent over this period.

Mr Lawless said the recent figures should put to rest claims that Australia’s property market is headed for a crash. “In fact, values are holding relatively firm particularly when compared to the benchmark equities S&P/ASX 200 Index which dropped by 19 per cent between January and August,” he said.

The only capital city to record a material decline in property values was Perth where this market fell by 5.69 per cent over the August 2008 period. While this fall in values has caused some distress for home owners, Mr Lawless reminds owners that the results need to be placed into context where values increased by 13.9 per cent annually over the past five years..

One of the most interesting findings in the indices release today was the convergence of the capital city market dynamics over the past six months which revealed that all capital cities recorded slightly negative growth; no particular city was significantly out of step with the others.

According to Rismark International’s Dr Mathew Hardman “Clearly, the observable phenomenon of the two-tiered markets in Sydney and then in Melbourne and to a lesser extent in Brisbane and Perth has disappeared ”

“Market movements are now similar across all metro areas rather than value falls being isolated within the mortgage belts. This balancing can be attributed to the squeeze the more affluent markets are experiencing due to the turbulence in the financial and equities sector.

“Looking towards the next six months, strong excess demand in most capital cities is creating a floor under property values, making large falls unlikely,” Dr Hardman said.

According to RP Data, with population growth projected to remain high and interest rates falling, the demand/supply imbalance is expected to protect the market from any major falls in property values.

Rismark International’s Dr Hardman believes that unemployment is not a major factor driving property prices; affordability, excess demand and market momentum are far more significant he said.

“Although unemployment is rising, unless it grows rapidly to significantly greater levels, eg 6 or 7 per cent over the next couple of years, excess demand will eventually outweigh affordability constraints and begin to push property markets upwards again, probably by the second half of 2009.”

“Over the long term, home unit values tend to track GDP growth, while house prices exceed it by approximately 2 per cent. In Sydney, house and unit values relative to GDP have returned to their pre 2000 levels so affordability is slowly returning to the Sydney market,” Dr Hardman said.

Around the State

Sydney Property Market:

In 2005 – 07, we observed a two-tiered market in Sydney: the separate dynamics of the north, east and Sutherland shire rising or steady versus the west and south west falling. In 2008, this distinction has largely disappeared. The Sydney market as a whole has fallen by about 2 per cent over the past few months and this is true across all areas. We don’t believe large falls in any particular region are likely, but neither are rises. The market will likely show some volatility from quarter to quarter, but little overall direction for the rest of 2008 and into early 2009. Sydney house values are still the most expensive in the nation with a median value of $565,180. With rental rates increasing and property values showing a modest fall, rental yields have continued to improve. Houses are returning an average gross yield of 4.57 per cent and units are returning an average gross yield of 5.71 per cent.

Melbourne:

Melbourne is also down about 2 per cent over the last few months and again, the falls are generally consistent across the entire city, with the outer eastern and south eastern suburbs falling on average by a little more (3 – 5 per cent). Melbourne house values have fallen by 0.14 per cent over the August quarter and are now recording a median value of $448,271. Unit values have increased by 0.68per cent over the three months to August to reach $362,771.

Brisbane:

Brisbane has actually fallen more than Sydney & Melbourne over autumn & winter: on average by 3 – 5 per cent. The median house value is now $455,146 and the median unit value is now $326,606.
South East Queensland continues to be the strongest population growth region in Australia. Such strong demand for dwellings will continue to place upwards pressure on values over the medium to long term.

Adelaide:

Adelaide has also lost about 2 per cent over the past quarter, with the southern and eastern suburbs falling by slightly more than average: up to 4 or 5 per cent in some cases. On an annual basis Adelaide is still well in the black with property values up by 10.28 per cent over the twelve months to August.

Perth:

Perth has been remarkably resilient, considering the combined influences of the stock market decline and the rapid property price rises of 2003 – 07 and their effect on affordability. On average, the market is only down about 2 per cent over autumn and winter. The August indicative figures showing 5 – 6 per cent falls should be read with caution as they are based on a small sample of sales.

Canberra:

The Canberra market has also recently trended down: houses by approx 2 per cent and units by 5 per cent.

Darwin:

The Darwin market has trended down about 1 – 2 per cent over the past few months; however market confidence is expected to rise along with increased demand on the back of large investments such as the Inpex gas deal.

NOTE:

*RP Data and Rismark recommends that caution be used when interpreting property indices results as these results can vary depending on the methodology used and sample size.

In all RP Data and Rismark published indices, methodology is clearly indicated. More information on the RP Data‐Rismark indices can be found here: http://www.rpdata.net.au/indices/