November Newsletter

 

Stuck between a house and a hard place

We live in very exciting times, especially if you own fixed assets, i.e. houses. Prices in all main capitals are up and continuing to climb.

The RBA want the banks to be lending at 2.5%. Of the 3 rate cuts so far the banks have passed on barely 60% and held back on existing borrowers until they were caught out... ah you’ve got to love our banks.

The RBA want rates down to drive unemployment to 4.5% which will drive wage growth and create inflation, something they haven’t been able to achieve for 5 years.

The by-product is that house prices are rising - and rising fast - much faster than current reports as those settlements won’t register until first quarter 2020. Case in point, Australia’s highest residential sale recorded in October for $140,000,000. That’s no incremental increase, it’s a full 40% above the previous record.

Smart money is on the move.

I booked an hour with the head of debt markets at one of the big 4 banks, and asked him 3 questions that are important to us;

  • 1       How low will rates go?
  • 2.      How long will they be this low?
  • 3.      How long can I lock in a facility for?

He laughed and said he feels like a monkey at the moment as every CEO at the top end is calling him in to answer those 3 questions.

You can get the answers in detail on the ‘Once in a Lifetime live Webinar’ we did to over 300 clients 2 weeks ago. To watch a recording, click here

 

Bottom line is the ground is absolutely moving under our feet. You need to get moving and moving fast.

RBA need to drive the economy and they know if rates drop, house prices will soar but, ‘LET IT RAIN’, inflation to be increased at any cost. Wow what a time to own property.

Finally on the most important ingredient to success; momentum.

We produced a table displaying a sample of 21 years of property delivery, which can be found in our upcoming 21 year magazine due out before Christmas. Here are some numbers on how much clients would have made over the years:

  1.          If you started in 1998 and bought one property every 3 years you will have invested $28,800, a portfolio valued at $5.2m, a land bank of 5,985m², which is increasing by $370,000 per annum in capital growth. You will have built net equity of $2.2m and a positive rental cash flow of $83,432p.a..

  2.          If you bought one property every 2 years you will have invested $67,800, a portfolio valued at $6.9m, a land bank of 7,422m² which is growing by $490,000 every year. You will have net equity of $2.7m, and a positive cash flow of $109,000p.a..

  3.          And if you bought one property per annum every year, you will have invested $85,950, a portfolio of $14.7m , a land bank of 15,845m², growing by $1m in capital annually. You will have a net position of $5.9m, and a positive cash flow of $225,000p.a.

Confucius got it right: it doesn’t matter how slow you go, so long as you keep moving forward.