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As with most things in property investing you are dealing with a free and open market. Within this market the forces of supply and demand will always apply. Obviously, if there is a shortage of properties available for rent and an increasing tenant pool, rents will rise and vacancy rates will fall. While the rental market in general is very tight at the moment with insufficient properties available for rent there are isolated areas where this is not the case in the short term…

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As with any free market, the Australian housing market is governed by the forces of supply and demand.  Think of it as a pendulum that constantly swings from a position of excess supply to one of excess demand. The centre (or vertical) position of the pendulum is that point where the two forces are balanced.  This is Market Equilibrium.  The pendulum will never rest in this position… but rather continue to swing to each extremity. 

These extremities are caused largely by “the herd mentality”. Let me explain…

• People, inspired by others making money from rising property prices, decide to do likewise
• Demand increases, thus pushing prices higher
• Higher prices mean reduced rental returns (rental yields are determined as a percentage of the purchase price)
• This downward influence on rental returns decreases demand (the number of able and/or willing buyers diminishes)
• The decreasing demand takes the heat out of the market
• As supply slows, demand for existing rental property steadily increases
• Rental returns improve, buyers are attracted back to the market (and the cycle continues)

Those who ignorantly rush into an overheated market, without much planning or assistance, may find themselves overextended.  These ‘sensational’ stories sell… and so are quickly taken up by our media.

The one overriding factor that makes residential real estate such a great investment class (stable and predictable) is this:

No matter what the state of the economy… (rent or buy) everybody has to live somewhere! They cannot leave the market, as with the stock market or even the commercial property market.  This rock that residential property investing is built upon provides a level of certainty that other asset classes do not (in my opinion).

Market forces will always prevail. Economic conditions may alter… but that will either result in an increase in values or rents. Either way, things always return to the centre point or Market Equilibrium… and we win!

Property investing ought to be seen as a long term strategy. It’s important to keep your eyes on the end result and not be spooked by events that happen along the way (anything that does happen between now and then is just “market noise”). Keep your support team close, continue to educate yourself and be sure to have your finances structured correctly. With a long term mind set, doing these things will act like suspension against any bumps in the road… and you will come to agree that the destination is well worth the journey.

Happy Investing,

Nick Lockhart

What is a property really worth?  With respect to  a market valuation, it depends on how much you want a property and how motivated the vendor is for a sale. Please don’t confuse a market valuation with a mortgage valuations; we will look at the differences below.

The correct definition of a property’s value would be the price at which a willing, informed seller would freely dispose of the property and the price at which a willing, informed buyer would freely pay for the property.  If those two parties were to agree then that would be a genuine measure of a property’s worth.

Unfortunately it is very difficult to accurately predict what that figure is.  By comparison it is very easy to value shares.  One AMP share is identical to another AMP share, is priced identically and the prices the buyers and sellers agree on are openly published.  With property no two properties are exactly alike.  Even identical units standing side by side will be different.  They may have a different facing, one may be closer to a noisy road than the other, one may be facing the pool and the other not. They are never exactly alike so it is difficult to do a direct price comparison.

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Most people enter the work force expecting to reach the summit of their financial freedom… utilising nothing more than their own efforts. This being so, why is it that less than 5% of Australians actually manage to retire on an annual income of $50,000 or more?

We know it’s not because they are lazy… Australia is filled with intelligent, hard working individuals who reach retirement… only to find (sadly) that they cannot survive on their superannuation.

At least in part, the answer to this question lies in a lack of understanding of the power of leverage. If leverage is such a powerful tool available to us all (and it is), then why is it so misunderstood or ignored by so many of us?

Could it be that we have become conditioned to believing that all income has to be earned? Maybe we have simply developed habits and continue to do the same things year after, year, essentially ignoring the opportunities that leverage offers. While we may know better … being busy and pre-occupied can be our excuse for failing to work smarter. Are you guilty of climbing the rock when you could have simply taken the escalator?

For many of us, the voices of our parents still haunt us saying… ‘Keep out of debt’. While sound advice is a valuable and we ought to heed it, there is cause for concern when it is given without qualification or differentiation? For example… the word DEBT generally conjures up all sorts of feelings within us (usually negative); but Debt, Properly Utilised, is actually a very powerful wealth creation tool!

Let’s have a look at three very different types of debt:

First there is what can only be described as HORRIBLE DEBT

Horrible debt refers to debt used to purchase consumables, or things that depreciate… bought with after tax dollars (that is no tax deductions). Cars, furniture, televisions and all general credit card debt best describe this category.

Then there is TOLERABLE DEBT

Tolerable debt refers to the type of debt we incur when purchasing an item (such as the family home) that appreciates in value but offers no tax relief.

Finally there is the good kind of debt or PRODUCTIVE DEBT

Productive debt is the type of debt that I want as much of as I can get my hands on! Productive debt is used to buy items that appreciate in value … And it also ATTRACTS TAX RELIEF… Investment in property falls into this category… property investment using Productive Debt is the gateway to your financial freedom!

“THE majority of Australians end up retiring and trying to survive on less than the average wage,” booms the self-described longest-running wealth education advertisement on television.

“Imagine that. Life without the money to do even the little things you love wouldn’t be good.”

John Fitzgerald’s Untold Wealth infomercials which offer buyers of an investment education package the prospect of making millions “from scratch” have been running on Australian television for over five years.

But what infomercial viewers are not told is that Fitzgerald, a Queensland property developer, uses that education package to attract investors to his associated “investment seminars”.

Seminar attendees are encouraged to buy Fitzgerald’s own often poorly located — and often lower-quality — property developments. Independent property valuers have warned that those investors who have bought poorly located properties through Untold Wealth — rather than investing in better locations — could have cost themselves hundreds of thousands of dollars in potential gains. Here’s the rub. Viewers are spruiked the $299 education package with “all profits” going to the Toogoolawah school for disadvantaged children.

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In the 1st half of last year I said that by the end of 2006 our market would begin to take off and the West Australian market would ‘come off the boil’.

I don’t think anybody would argue that 2007 has seen the East Coast property market begin to soar while property in the the West has levelled off. When it comes to investing for your future, you will have to contend with the many competing voices and conflicting opinions. But it’s not that hard to ‘block out’ those voices and opinions when you understand that:

RESIDENTIAL real estate (unlike any other form of investment) is dominated by home owners (i.e. not investors) and everybody has to have a roof over their head.

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If you think rents are high now, this could shock you: one property expert thinks most landlords are undercharging.

While prices have been on the climb, Rental Express director Chris Rolls said many landlords have a lack of marketing information and were charging too little – not too much.

When changes to superannuation laws were announced, a wave of investors sold their properties and shifted the proceeds into superannuation – tax-free.

That mass exodus, coupled with soaring property values, spiralling vacancy rates and increased demand makes the market very attractive for investors.

However many haven’t realised just how attractive, Mr Rolls said.
“Many agents and owners live by a standard rent increase of $5 or $10 per week each time the lease expires,” he said.

“This just doesn’t make sense in a market where rental prices are increasing by up to 15 per cent annually.”

In one instance, Rental Express took over the management of four one-bedroom flats in Kelvin Grove that rented for $160 per week.On one unit they increased the rent to $200 per week, and to $180 on the others. “That’s an extra $5200 per year of income for the owner,” Mr Rolls said. Owners are getting a better return on their investments than in the past 10 years, and the trend was expected to continue, he said.

HowMuchRent.com.au is an independent valuation resource that calculates expected rental income.

SYDNEY is in the grip of a second property crisis with the supply of new houses falling to levels not seen since 1975 and research forecasting rents to rise by as much as 40 per cent within two years.The results of a study, by BIS Shrapnel, has shown construction of new homes in Sydney has hit an historical low, rivalled only by the slump of the mid 70s.

Coupled with housing affordability, low to middle income earners are being warned that prices are likely to spike again within four years with “steep price increases”.

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The article followed in the same vein as many regarding increasing rents and low vacancy rates. They showed the price of a 4 bedroom home in Brisbane increasing from $185k in 2001 (rent $245pw) to $360k in 2006 (rent $340). That’s a 95% increase in price and a 39% increase in rent. The Gold coast over the same period showed 100% increase in price from $189k to $378K (rent up 54% from 340pw to $370pw). In Caloundra 2 bed units rose from $176k to $372,500 (112% – who said that units don’t show capital growth!) with rents increasing from $155 to $230pw – 48%.

Michael Matusik was quoted as saying that the trend was set to accelerate – “we anticipate that up to 40% of households in urban Queensland will rent in the next 10 years or so. He also commented that with rising rents there would be an increasing number of people sharing accommodation. An interesting fact was that 80% of all property investors earned less than $75k p.a. You don’t need a huge income to invest.

Source: GC Sunday Mail