Advice For The Coming Slump

[Commercial Dan]

As the coming slump is just about upon us here is some pertinent advice: (have given Wgtn examples)
I have hardly heard anyone talk about a slump who has a self-interest from selling their services...

-Sell all your average holdings in average areas (e.g. Porirua, Wainui, etc)

-Consolidate your portfolio into quality holdings only (Central city areas like Newtown, Brooklyn, etc), these atnd the test of time

-Keep gearing levels at 70%

-Throw trading away for now, it is too risky at this stage of the market, you could lose your shirt

-keep an eye on your interest rates, if you have to fix again soon prepare for the worse case scenario of these rates staying high for 6-12 months. Fix for 18-24 months to be safe.

-Ask yourself, could I survive if my holdings were only 70% tenanted?

-prices will go up over time but prepare for a possibly large abberation

-get on side with your bank manager and make sure the carpet won't be pulled from under you, diversify between lenders and see a good mortgage broker

-work on improving values and doing up investment properties rather than buying, this is the time to consolidate and protect what you have

-make sure you have quality tenants as they may feel the pinch as well, I notice a lot have huge credit card debt and large big screen TVs, you might have to really keep an eye on them.



Further points invited....good luck!

[toby]

Do not agree.
Buy and hold is just that.
Quality comes down to your management not so much location, after all it's about the numbers is it not.

So far as stop trading- Why would you sell when the market is rising then keep when the market is flat?
Houses still sell at good prices in a flat market, it just takes longer.
I got a valuation report yesterday saying that the market had slowed down, initially I thought oh no until I read on and it said, from an average of 24 days to 31 days.
If one week is the difference between making a profit or not, or even one month - you screwed up!

Be counter cyclical, when everyone is getting out, get in.
You don't amass a large portfolio in a month let alone a year, normally. It takes knowledge, time and action.

If you do what everyone else does you get what everyone else has.

Thinking back if, oh yes if, I had bought more homes in the late 90's I would be drowning in equity instead of swimming in it, not to mention my rents would of almost doubled, making me completely financially independant.

Oh for the good ole days (these are the good old days!!!).

[Tucker]

I wouldn't throw away trading I would do more of it. The profits you make you can use to pay down some of your buy and holds. Just make sure you are purchasing well below market value, add value if you can with do-ups etc. Even in a slump there are still people buying. In my opinion trading is usually done quite quickly so any movement in the market isn't felt because you usually only own the property for anywhere from no days (on sell before settling) to around 2-3 months for bigger do-up deals. Even in a boom when I do do-ups and trading I don't take into account any capital gain.

[Dean@Massiveaction]

Some of Comical Dan's advice is sound but to stop trading is silly. traders make money up, down, sideways. We are better educated in our areas so we can find better buys and still make money.
And as there is no slump looming why worry anyway??

[Don and Liz]

throw away trading??

i can't see how taking away one of an investors main tools will help things. Actually it is sometimes easier for "professional investors" in flat markets.

[maken]

Hi guys,

surely the fact that we are now going into winter must be playing a part in the slowing in the market?

I also see us being compared with the states and the fact that they are going through a correction/crash.
I was in L.A a year ago and made some inquires as to house prices in an average suburb 20 mins from the city. 3 bed weather board houses were selling for around 700k u.s. The real estate agents I dealt with called it an affordability crises. So what they are going through now must surley just be the big correction they needed?

[Monid]

For professional investors yes they can still make money trading in a flat or even a declining market. Though for even them it is higher risk to trade in a declining or flat market a rising market is very forgiving. This would be particularly the case for one type of traders the do up and on sellers.

But the vast majority aren't professional investors that is who Dan is aiming this at I presume. Furthermore surely you agree that in a rising market it is easy to make money trading and to think the results are your own cleverness, not the market rising. If people have fooled themselves into thinking they are great traders then they may well be stung by a dropping market.

Cheers
David

[Commercial Dan]

This thread is aimed at the majority of investors, especially the ones who have only been investing in the current boom cycle. Don't think for a moment that there won't be a slump, economic common sense says there will be. During these boom times there are always the 'this time its different proponents', ask anyone who was around in the late 80s and early 90s, that same optimism (like today's) was there till the markets crashed.

We live in a market economic model which evolves through intense economic cycles of booms, flat periods and busts. Even when it seems near impossible for anything to go wrong it normally does.

Just be prepared for it, it has been very easy for the past few years, back in early 2000 while going out to see a few properties with an agent the entire agency was struggling, this guy who was a top performer in Wellington and had hardly sold anything in months.

These are not scare tactics at all, just be wary as the market does not always head north, remember that....

[Propoholic]

During these boom times there are always the 'this time its different proponents', ask anyone who was around in the late 80s and early 90s, that same optimism (like today's) was there till the markets crashed.

I totally agree with Commercial Dan's comments, its certainly amazing how the euphoria built from one boom period lifts the human psyche to a point where we believe some kind of permanemt market rerating has occured. I remember in 1987 (pre October), Auckland was being promoted as the next financial-banking centre that would give Sydney a run for its money. There was a one hour documentary about New Zealand's new future. Martin Hawe's and Keith McIllroy were running property and share investing seminars all around the country. Everything was very positive as it is now.

back in early 2000 while going out to see a few properties with an agent the entire agency was struggling, this guy who was a top performer in Wellington and had hardly sold anything in months.

I had a similar discussion with a top agent in Mt Eden in 2000. She was slightly concerned as the year had been very quiet and was considering selling a couple of her investment properties.
Of course those periods are the ones to be very active in as an investor, the words "low offer" will never be spoken by an agent and a vendor will treat all offers seriously. Competition from other purchasers will be at a low because the general public now believe that property is an unwise investment. Their views are fortified by television documentaries that portray the large losses that investors and homeowners have suffered through residential property.

[toby]

I can't remember '87 economically other than I recall I was getting a high rate on term deposits.

Tell me though wasn't the share market over heated too?

This is not the case at the moment is it?

I'm not suggesting we are not going to see some slow down but lets get real. If someones strategy is to buy and ride the cycle are they an investor or speculator?

[Commercial Dan]

http://www.stuff.co.nz/4098326a10.html

Be wary of Mr Bollard..

[muppet]

Whole article at

http://www.propertytalk.com/forum/showthread.php?t=11282

[Don and Liz]

open mind

In another thread I have made reference to the importance of keeping an open mind. We need to be carefull not to filter out any information (positive or negative) that could impact on important investment decisions.

[Tucker]

Doesn't residential cycles follow rural/dairy cycles in which case we are seeing increasing growth/activity in rural prices.

[Libertas]

Business Cycle

Doesn't residential cycles follow rural/dairy cycles in which case we are seeing increasing growth/activity in rural prices.

Growth in Dairy at the momment is a result of a combination of global factors. There is huge demand for protein from China. The American's are growing corn for methanol production. And also global inflation seems to be filtering through to food now. This my be a sign of things to come.

The export sector (including rural/dairy) increases productivity while the domestic markets are in a slump. This is because: the interest rates are lower - there is less demand for our currency - the dollar drops - our products are more favorable to overseas markets and this overall real growth increases our GDP. About this time in the cycle the money supply is increased to encourage consumption, then the cycle begins again.