Duke I appreciate the advice although I might not look into Property now in the US because I am just in college. It does help me look forward in life to what I would like to do and invest in.
Thanks again.
[quote]Regular Gonzalez wrote:
You are right that there is an element of risk in all investments.
I was under the impression that if your assets value fell below your debt level, the bank could revalue, and you could end up with nothing. It seems I was wrong.
I would also be interested to hear your take on the Australian property market. Do you think that now is a good time to be entering the market?, or do you feel that property is currently overpriced and it would be better for a new investor to wait a few years?
I was just reading the following article:
I found the following part interesting - “Although the relationship between Australia’s total land values and gross domestic product has varied since 1911, it has averaged 1-to-1. Although it got to 1.56-to-1 in the 1930s Depression, it now stands at a menacing 2.5-to-1”
Another article - http://www.smartcompany.com.au/Free-Articles/The-Briefing/20080404-Australian-property-bubble-could-be-about-to-burst-IMF.html
"In the April edition of its World Economic Outlook, the International Monetary Fund argues that Australia’s property market is the fourth most vulnerable in the world to a painful price correction.
The IMF looked at the extent to which increases in house prices between 1997 and 2007 are not explained by corresponding increases in the drivers of sustainable house price growth such as higher incomes or low interest rates.
It found the gap between house prices and underlying value fundamentals is close to 25% in Australia, with only the housing markets in Ireland, Netherlands and the United Kingdom in a worse condition.
It is not inevitable that Australia’s property bubble will burst, the IMF says, as rising incomes and moderate inflation could see real property prices fall in a more measured way"
On the positive side (for owners), it also states that "Another characteristic of Australia’s property market that is likely to continue in the medium term is rapidly rising rent levels.
Last year’s double digit growth in capital city residential rents is likely to continue over the next five years, equating with a 50% increase in rents between now and 2013, according to Australian Property Monitors research reported in newspapers today".
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Yep, banks do not re-value if the housing market falls, leveraged shares are re-valued daily and if they fall you may be forced to inject more money to balance the leverage or sell your stocks, possibly at a loss.
My personal opinion of the Aussie market, as a whole, is that we are facing a well publicised extreme shortage of housing which is causing the rent rises you mentioned.
Investors are only now starting to look at property again as the rise in rents starts to present decent yields. On the whole, I think being patient for now is a good thing, wait for signs of a recovery.
However, I’d recommend you get the Australian Property Investor magazine, very good articles, up to date info and it’ll clearly show that there are always those suburbs that buck the trend and go up, in a down market. It’s very much a point now of making an educated decision on where you buy. A few years ago, you buy anything anywhere and make money - I did it. Bought a place off the internet for $38k. In the middle of nowhere, just for fun really. It tripled in value within 18 months. Not so easy to do now.
Another tip, remember all the mining Australia is doing at the moment - this boom is going to continue, and the huge demand is creating very good prices in property in the areas where the mines are. I wouldn’t hold them forever though.
[quote]msd0060 wrote:
Hey man, re-reading that I did come off a bit assholish. Not my intention, and certainly was not singling anyone out (you).
After months of reading, I realized there are several people on any given forum offering what seems like awesome well thought out advice, and you can guarantee that almost all of it will contradict what the other “experts” are saying. It makes it very hard to figure out who to listen to.
[/quote]
As they say, opinions are like arseholes, everyone’s got one.
I know what you’re saying. My suggestion is to keep reading, keep learning, it’s the only way you’ll be smart enough to figure out ‘the shit from the clay’.
if you stop listening, you could miss out on some very useful information.
Cheers mate.
[quote]MidDistanceMac wrote:
Duke I appreciate the advice although I might not look into Property now in the US because I am just in college. It does help me look forward in life to what I would like to do and invest in.
Thanks again.[/quote]
My pleasure young fella. Never too early to start making your goals and setting your course to achieve them.
Good luck.
I probably know too much about this stuff so it is hard to get down to the basics, but I´ll try.
Rich Dad, Poor Dad is a good book because it teaches the basic, most primitive things, those are the most important though.
One is this:
Work against compound interest and you are pissing against the wind.
Work with it and you are halfway there.
An example: Let´s say you buy a house, a car or whatthefuckever. You have to pay this back, with interest. From the income that has been taxed before.
So, you will end up having to make 2-3 times the money of what your house is actually worth.
A truly rich person buys it with money he has saved years before and with the compounded interest. I do not know the US specifics but return on investment is usually taxed less than labor income.
So this person pays less than 50-60% of the value for the same house you played 2-3 times of its value.
The reason why the rich keep getting richer is that it is easier playing it that way when you already have everything.
Second thing is, invest in things you like and understand. For the author of RD, PD it is real estate, for me it is small businesses.
There must be something out there you actually like investing in and you would like to spend your time with.
You will very likely make more money collecting baseball cards or art or old furniture or whatever floats your boat then being the 1000000001 guy to be playing around with stocks.
And third, being the best dentist you could possibly be would not hurt either.
Pork bellies. all pork bellies all the time.
what type of investing are we talking about here? futures, stocks, options? anything?
[quote]Duke wrote:
Compound Growth!
I’ll summarise my spreadsheet to see if it can help make the point.
I have $2m in property, value of $3m, held for 13 years so far
That = a compound growth rate of 3.2% per annum.
With that same small growth rate over the next 7 years - I can expect to make a further $732,000 or $104,000 per year.
If held for the next 15 years, I’ll make a further $1.8m or $120,000 per annum.
Whether I’m working or not. It works for me every second, minute and hour of the day, 365 days a year.
Don’t take my word for it, look into it guys.
And remember, the growth rate above of 3.2% is very low and realistic. some years are less, many years are more.
If you’re living expenses are say $70,000, then you’re not spending it as fast as you’re earning it, and if you set up a line of credit on the properties, then the income is tax free (again, in Aus) which is probably equivalent to having a job and earning about $110,000p.a. before tax.
Sorry if I’m taking over the thread. I’ve done it and it excites me that others can do it too, that’s all.[/quote]
It is just that if you are talking nominal growth instead of real growth you are actually losing money each year because the dollar inflates faster than 3.2%.
You might own 5,63 million in 20 years (3*1,032^20) but they will only be worth 2,57 (3,75/(1,04^20))in todays money if the US inflation stays at only 4% each year.
Before I did that I´d rather spend it on hookers and booze.
Or aim at 3-4%, which is easy as you say, and invest it abroad.
[quote]AccipiterQ wrote:
Pork bellies. all pork bellies all the time.
what type of investing are we talking about here? futures, stocks, options? anything?[/quote]
The kinds that go up over time. Sounds like real estate is main one most people are using on this thread
Going back on a previous question asked, how does one (one being a teenager about to go to college) get the ball rolling? Or should I just not worry about it now?
(However, in somewhat analogical way, you could really never be too young to start weightlifting if done so properly).
I have a job that pays $9 an hour and when school starts it’ll be part time, but I’ll have some couple k stored in the bank.
Can I hear about what some people did in college specifically and how did they manage their college costs (tuition, boarding, food, life) while rolling the ball?
Edit: Also, I looked at all the sites and went through some in depth, but so far has anyone found a website to money as T-Nation is to fitness?
Rental properties are tough to manage sometimes but if you have the tenants on a legally binding lease then you barely loose out.
i’ll use myself as an example i bought a 4 tenant home about 6yr.s ago for $150g’s the mortage is roughly $1200 a month each tenanat pays 850 a month so on a good month i make around $2200 a month take home.(just don’t take any shit from your tenants be civil yet firm because people will take advantage of a real nice landlord). oh and the 4 unit is now valued over $300g’s so i won’t loose on the home if i sell it>
Glad someone started this thread I was wondering about all this stuff as well but had no clue where to begin. So thanks. Ahahha funny someone mentioned a website like tnation for money i was just thinking the same thing.
M-Nation.com is a great resource I hear. (Get on the ball TC…)
[quote]orion wrote:
It is just that if you are talking nominal growth instead of real growth you are actually losing money each year because the dollar inflates faster than 3.2%.
You might own 5,63 million in 20 years (3*1,032^20) but they will only be worth 2,57 (3,75/(1,04^20))in todays money if the US inflation stays at only 4% each year.
Before I did that I´d rather spend it on hookers and booze.
Or aim at 3-4%, which is easy as you say, and invest it abroad.
[/quote]
I understand your maths but not sure about your logic. You’ve stated that you know too much and it’d be hard to get down to basics, but if you can bear with me, I’d like to address your logic;
Firstly - the figures stated by me are example only. it assumes I bought $2m of property in one hit 13 years ago. I didn’t. Therefore the growth rate is an example only. E.G, the property I mentioned that I got for $38k had a growth rate of 73.2% - that beats 4% doesn’t it.
Secondly - if you’re saying that the future value is ‘only’ $2.57m in 20 years, after discounting it by the CPI, so you’d rather spend the money on beer and hookers… I think you’d need to be very careful about offering advice to someone on how to invest if you plan to spend tens of thousands a year on booze and hookers.
Thirdly - If you’re going to discount the future value of the investment by the CPI, shouldn’t you also discount the future value of the debt by the same amount?
If you agree, and how could you not, then the future value of the $2m debt would be $913k.
Therefore, the ‘20 year investment’ adjusted for CPI will still net you $1,653,000 profit… in future dollars, that’s $3,622,000
More simply put - the CPI in Aus over the past 37 years is around 6.1%. The average housing value is compounding over the same period at 10.3% - That’s more than 4% ahead of the CPI! and therefore negates the argument anyway.
How can you NOT make money - put the calculator down, you know how to use it, but do you know how to invest - it becomes common sense.
So by the looks of it this method(property) seems to be best for someone with enough money to actually buy a house to rent out. What would be some good advice for someone young?
I am 19 and would like to have enough money to retire by 35. I have read a few books by Philip Fisher and Benjamin Graham but, I am still a bit to nervous to actually begin investing with the few grand I have. Any advice?
Invest at least 25% into something physical like gold bullion in case the monetary system fails. Monetary system refering to how most of the world handles their wealth. I would suggest you research the monetary system. I believe it was King Henry the third who invented it. Basically he was not able to afford to keep his war machine on France going; he just didn’t have enough gold bullion in his vault to back it up. SO he starting using money and came out with a lottery which is such a system where people pay for a lottery type ticket. All the money poeple spent on these tickets gets put into a pool and then 10% is paid back out in a grand cash prize. Anyhoo… it is many peoples belief that a system like this is destined to fail; be prepared, have some gold. Having money is nothing more than some piece of shit number on some banks computer.
A couple of years ago I was going to buy some gold; it was selling for around $550 per troy oz. Last time I checked the price it was at about $800.
/me pulls out a gun and shoots himself in the face.
P.S
Copper is starting to become extremely expensive too.
If you are young and single, with a good income, you should take a chance on penny stocks with a small portion of your money. You may hit the jackpot. Chances are you will lose but things like Coca-cola stock and GE are for little old ladies. You won’t lose but you won’t hit a big one.
Here are a few general things I know.
A decent rule of thumb is that 100-your age is the percentage that you invest in stocks, and the other part is the amount you stick in bonds. Lets say you are 20. 100-20=80, so 80 percent of your total portfolio should be in stocks, and 20 percent should go in bonds. If you are looking for a cheap way to get started, mutual funds are probably the way to go, simply because they are a cheap way to atain diversification. Here is some other info:
Stocks are typically sold in round lots, or 100 shares. This is why many folks like mutual funds because 100*$35=$3500, and in this case, all of your money is dumped into one basket.
Bonds are typically valued at par of $1000, and pay interest semi-annually. They are usually sold in groups of $25000.
Diversification, is in the simplest terms, the minimization of a protfolio’s risk. This occurs when you hold many different types of assets that are not perfeclty correlated, that is to say that they do not move up and down exactly together. According to modern portfolio theory, from a guy named Harry Markowitz, you need around 20 or so assets to be fully diversified, however some more recent research puts this number at about 50 or so.
Mutual funds are basically a lump of claims on many different company’s stocks. Mutual funds can be divided into 9 basic categories: large cap value, large cap blend, large cap growth, medium cap value, medium cap blend, medium cap growth, small cap value, small cap blend, small cap growth. The cap designation refers to the size of the companies in the mutual fun, and the growth, blend or value designation tells you what life stage the companies are in or what thier current strategies are. Value companies are the older, established firms which generally pay consistent dividends, while growth firms are the smaller companies that look to have very bright futures. With value firms, you try to find a company that his down somewhat, or undervalued, and purchase it cheap and watch it go up. With growth, you hope to catch the next big Walmart or Starbucks. Small caps are obviously smaller companies, and large cap are larger companies. It is generally accepted that the best one to get into for starting investors are mutual funds with large cap blend strategies. These are usually the least risky mutual funds, as the blend gives you the advantages of both growth and value investing, and diversifies there risks. This is because value and growth strategies tend to display some degree of negative correlation. That is, value companies usually perform the best during economic downturns, or bear markets, and growth funds do well in growing, or bull markets. The large cap means that they are more establised companies, and thus less likely to go belly up at the first sign of trouble. Now, a 30 year study done by Forma and French says that small cap value over the long term gives you the best return for the risk, but the risk is fairly high there.
It is also impossible to tell if past trends will continue into the future.
I will post some more stuff tomorrow, as its getting late and the computer lab is about to shut down. Just to clarify what I wrote, I am a graduate accounting student and my knowledge comes from study and research mostly, with a very small amount of practicle application, so a grain of salt may be needed.
Duke, you seem to be a very knowledgeable bloke in this area, and one of your earlier comments kinda stuck with me. I believe it was that all investments had risk. Technically this is true, yet most regard U.S. T-bills to be risk free, and last I checked they were earning a rate of return around 3.85%. It is also possible, but not likely, to set up a riskless hedge with two assets that share a perfect negative correlation. It is my opinion, however, that this can only be done in textbook examples and research cases though, but if you know of an example of it I would be delighted to read about it.
[quote]Professor X wrote:
I just want to not waste money.[/quote]
If only we could get this point across to the majority of the money managers.
This is pretty interesting:
http://www.fundx.com/customerhome.aspx
I don’t do it, but it’s interesting and seems relatively safe.
You have to have the psychology to do this right and know what to look for in a “down” company. As Buffet put it, “I’m wired for the game.” I’m not, nor will I ever be.
[quote]And remember, the growth rate above of 3.2% is very low and realistic. some years are less, many years are more.
[/quote]
Great. Inflation is now running at around 5% here. You can get better rates in a CD.