Ron Hoy Fong - Will The Next Boom Be The Boom Of All Booms?

[speights boy]

Yes, inflation is the property speculators dream ......

Why did you exclude property investors in that ?

[Wayne]

Why did you exclude property investors in that ?

Because many would say that buying a house that isn't cashflow +ve from day one is speculation.
So if you are investing and have cashflow +ve you are less inclined to worry about capital gain.
I don't really subcribe to that line of thinking and didn't want to go there so limited the comment
to people who obviously benefit from rising property values - speculators.

Buying a house with 4% return is perfectly reasonable property investment in my book - if you paid cash.
When money in the bank gets you 4% and no capital gain (doesn't keep up with inflation)
buying a house with 4% net return and it keeps up with inflation is perfectly sensible.

[elguapo]

Your stats do not explain the rocketing Auckland house prices. Seem like they're applicable in Tokoroa.
So I guess your not a property investor. I must say you are good at using stats for skewing wrong info for the wrong areas.

Auckland central prices is well above the 4% pa over the past 2 years The higher the inflation and higher the prices the better for investing and holding properties.

Correct, so does that mean a structural change has occurred that now means they will continue to increase at that rate or higher, or does it mean they will revert to the long term mean?
What do you think will sustain those price rises if they are to continue?

Buying in the bottom of the market in 2009 and capitalizing now give more than a 4% average

Paying down good debts that's making you money is an incorrect move during a boom. (However your use of stats from La La Land can prove that wrong I suppose )

Paying down during the boom is absolutely the correct move, it's those who leverage up during the boom who loose their shirts. Even if they don't, trying to pay down debt at the bottom means you are on the sidelines when the best buys are to be had. Wouldn't you rather be captain cashed-up at that point, it's like being a horny guy in a whorehouse after all.

[Davo36]

An entertaining 3 minute video on the power of numbers.

www.youtube.com/watch?v=SLIvwtIuC3Y

SB, I have a masters in Operations Research and I love playing around with combinatorics, programming etc. 52! is indeed a very big number

[Davo36]

I don't see rents increasing any time soon.

We're running out of ways for people to pay. In the 70s and 80s we had large income increases. In the 90s, 00s and tens todaywe have the second partner (the woman in the old days) going out to work as well - so 2 incomes.

Where are we going to go from here? I can't see wages rising much because of globalisation. There are no more people in the house to earn (kids are still paying off their student loans!).

So unless we import a whole bunch of rich people from overseas, who then want to rent rather than buy, I can't see how rents are going to rise.

And of course the whole "Doubling every 8-10 years" thing can't mathematically keep going.

[Wayne]

And of course the whole "Doubling every 8-10 years" thing can't mathematically keep going.

Ron says it has since the end of the last war (no evidence given) so who are we to argue?

[elguapo]

Buying a house with 4% return is perfectly reasonable property investment in my book - if you paid cash.
When money in the bank gets you 4% and no capital gain (doesn't keep up with inflation)
buying a house with 4% net return and it keeps up with inflation is perfectly sensible.

If that was 4% return after all costs and accounting for all the time required for property management etc, then that's not a bad return, if not, not so much.

[elguapo]

Why did you exclude property investors in that ?

I'd say most property investors are net buyers, so they just want properties at reasonable value. Strongly rising prices really only benefit those leaving the market.

[speights boy]

Strongly rising prices really only benefit those leaving the market.

Then why is there so much bandwidth here given to the "rinse and repeat " line ?
Buy, wait for property to increase, revalue, recycle your deposit and buy another.

[elguapo]

Then why is there so much bandwidth here given to the "rinse and repeat " line ?
Buy, wait for property to increase, revalue, recycle your deposit and buy another.

Because those strongly rising prices hide a lot of errors.

As they say it's when the tide goes out that you really see who wasn't wearing swimmers......

[speights boy]

Because those strongly rising prices hide a lot of errors.
As they say it's when the tide goes out that you really see who wasn't wearing swimmers......

That was Super
..thanks Coach

[RonHoyFong]

Correct, so does that mean a structural change has occurred that now means they will continue to increase at that rate or higher, or does it mean they will revert to the long term mean?
What do you think will sustain those price rises if they are to continue?



Paying down during the boom is absolutely the correct move, it's those who leverage up during the boom who loose their shirts. Even if they don't, trying to pay down debt at the bottom means you are on the sidelines when the best buys are to be had. Wouldn't you rather be captain cashed-up at that point, it's like being a horny guy in a whorehouse after all.

Paying down a Bad Debt in any market is a good move, but paying down a Good Debt that's already making you money is definitely an incorrect move and stupid at that. Why would you want to pay down debt with taxed earned dollars?
Every Mortgage Dollar you pay off would cost you a $1.30 of before taxed income. Far better to use it to buy another property and compound your capital growth. Much cheaper to pay the 5.85% interest for the next 6 years and gain a tax deduction while the money you would have used to pay that mortgage is working in a positive manner elsewhere earning even more capital growth plus some net yield. (In your case an extra 4% net on the leveraged value of the property. )

As to being like a horny guy in a whorehouse... I don't know what the heck your talking about. I guess you must have some experiences in this area. Please tell us more about it!

Ron Hoy Fong
Ronovationz.com
Super Coach

[Orpheus1]

Paying down a Bad Debt in any market is a good move, but paying down a Good Debt that's already making you money is definitely an incorrect move and stupid at that. Why would you want to pay down debt with taxed earned dollars?
Every Mortgage Dollar you pay off would cost you a $1.30 of before taxed income. Far better to use it to buy another property and compound your capital growth. Much cheaper to pay the 5.85% interest for the next 6 years and gain a tax deduction while the money you would have used to pay that mortgage is working in a positive manner elsewhere earning even more capital growth plus some net yield. (In your case an extra 4% net on the leveraged value of the property. )

As to being like a horny guy in a whorehouse... I don't know what the heck your talking about. I guess you must have some experiences in this area. Please tell us more about it!

Ron Hoy Fong
Ronovationz.com
Super Coach

Yep Im straight I/O but with a big offset account.

I use the offset as a down payment for a new property and then spend as much time as it takes to get the offset low enough to do it again.

I don't see the point in paying down debt and tying up capital.

O

[elguapo]

I don't see the point in paying down debt and tying up capital.

If you can't see that, then my explaining it in simpler terms is not going to help you.

As to being like a horny guy in a whorehouse... I don't know what the heck your talking about. I guess you must have some experiences in this area. Please tell us more about it!

Ah, if that one doesn't work, how about being a girl in a 90% off Jimmy Choo sale.

[elguapo]

That was Super
..thanks Coach

Ouch! Perhaps I should have just posted 'No one understands the exponential function'!

I could also say that the buy, revalue, recycle thing does look very similar to a pyramid scheme......it works just as long as your not the one holding the bag when it falls over.