Price Rise Is Permanent While The Market Correction Is Temporary

Disclaimer : Articles in this blog are just personal opinion of the author or authors. It may or may not be correct. Pls do your own due diligence and pls seek professional advice according to your own personal circumstances.

During my innocent days (2007-2011), I had the privilege to meet a person (multi-millionaire with 60 plus properties). He used to charge 300 dollars per hour, and I had number of paid one-on-ones with him.

Want to share some takeaways from those sessions: –

  • Innocently I used to tell him that in my opinion, when the property boom happens, good areas like epping, Strathfield, carlingford, chatswood only grow in price because they have good schools and close to city. He used to say that when boom happens, everything grows, regional grows, penrith grows, riverstone grows, Melbourne grows. Offcource the growth will be different for different areas but everything grows. As long as your cost price is less, u have a property in which u can add value and u have proper exit strategy, u will do good. So he pointed that instead of buying 1million property in good suburb and then hoping for it to double, you should buy low, may be 300k property in three different places at the right time just before the boom.
  • Have a mix and match strategy. So if u buy a negatively geared house with hopes of capital gains(type1), buy alongwith a positively geared property with no hope of capital gain(type2). This is very important to understand, and many people have got it wrong. My friend named Ramesh only buy type 1 property (750k 4 bedder good house in Quaker hills) and quickly exhausts his borrowing capacity. He now waits and hopes for capital gains in future while loosing money on negative gearing. My friend Suresh only buys in outskirts of Brisbane type2 (250k appartment in north lakes) properties. He can buy 5 or 6 of them with his borrowing power but he does not know why he is not moving forward in life despite of having 6 properties. The world is divided into Ramesh and Suresh. The right strategy is to mix it up. Buy type1 property and on same day buy type2. Positive rental from type 2 will cancel out negative rental from type1. With time type1 will grow. Sell it and pay off type 2 and have an income stream for generations.
  • Timing is very important, 90% of people in the world are google driven. That is why u have only 1% of people in Australia with 5 plus properties. People buy when google says it is the right time to buy. That is why you will see loads of people now caught unawares with land in marsden park, nsw, tarneit/werribee/wyndham vale in Melbourne. These all people bought at the peak and now are sitting with negative equity (with just land and no house on it). Buy when google says that property market is going to crash by 40%. That is the right time to buy.
  • Risk planning, No one of us have a crystal ball. I was amazed to see 1000 people standing in front of the stall of an Indian fortune teller on the Diwali mela event. NO ONE CAN PREDICT THE FUTURE. U have to have a ‘what if’ risk planning excel sheet ready. It should have points in it, what if X happens, what if Y happens, what if Z happens. And then you should write what will u do if X or Y or Z happens or combination of it happens. This is how major projects in big companies get delivered. U need to have a risk register and a risk mitigation strategy and risk contingency planning. You cannot fail in life if u have risk planning document.
  • Plan for your bad days, if the market downturns, have a property where u can add value. For example, if u are struggling to pay for the negative geared property. Add a granny to it and manage ur cashflow. Do some renos and increase the rental.
  • Buy below the median price of the suburb.
  • Be aware of the ripple effect. This is very important. I have seen this in front of my eyes. When we migrated in 2007, Strathfield was the hot suburb. And people used to say that don’t go to blacktown as u will be stabbed in daylight. We have seen ripple effect of the growth travelling Strathfield/homebush/homebush west/Granville/parra/westmead/wentworthville/pendly/toongy/blacktown and it is just unstoppable.
  • When a train station comes, the suburbs in its diameter grows. Take the example of epping. All suburbs in its diameter grew. Parramatta the whole diameter in all 4 corners grew. Next will be diameter growth in the new train line. Cherry/castly/bella/Kelly/rousehill. U will see the diameter of these suburbs growing. For example box hill is in the diameter of rouse hill. Marsden park will grow more when the extension train line is announced and so on and so forth.
  • It is all about demand and supply. The house will get sold when the demand and supply graphs will match. If you want to google something today, please google and read about “Demand and Supply graphs and the theory behind it”.
  • The most important take away was “Price rise is permanent while the market correction is temporary”. People who understand this simple statement are in the 1% top property moguls quadrant in Australia. Pick any suburb in Sydney, prices almost doubled in value between 2013 to 2017 boom. For example house which was 550K became 1.1M. Now the market correction is happening and say that it fall down by 10%. Still it is 990K, which is still 180% of its original price.
  • So “price rise is permanent while the market correction is temporary”.
  • With these thoughts, I will leave you to enjoy the beautiful easter break. Pls spend time with your family and friends, enjoy life. Take out 10 mins during the next 10 days to talk with your spouse about your finances and how u plan to retire. Pls talk to them how the govt will not give you pension or any support when you will retire at the age of 65. Pls mention to your spouse that how the govt gives tax breaks and how it helps and wants u to plan your life between age 40 to 65 and how govt does not want you to rely on it after age 65. There is minimum(read ‘no’) support by govt after age 65 for people who have owner occupied home. Tell them why it is important to plan for your retirement. Tell your spouse not to assume that you will keep working like this upto the age of 65. Hold there hand and tell them that you both are growing old and the energy u had at the age of 30, you don’t have it at age 40. Tell them that u need to setup a plan for retirement and sort out the finances as the time is running out. We will always be busy and we will never have time. But the least we can do is to ponder and spend 10 mins in the next 10 days to talk about our retirement planning with our spouse.

I leave u with these thoughts. Happy Easter.

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