Investment Property Advice

[Doughboy]

Well the time has come to put all that cash under the bed to good use.

We have not yet spoken to any lenders but I thought out there in this woody haven there would be some folks with knowledge on the matter.

We have close to 70 grand and want to buy a property as an investment. Should we negative gear? I have heard of positive gearing but know nothing about it. Borrow the full amount or part thereof.

Any advice or thought would be greatly appreciated. Thanks in advance.

[Rossluck]

From my point of view you'd be better sending the money to me, so I can think about your options for a while. I could test it out by using it to build my shed....:)

Sorry to be a nuisance, I couldn't help myself. Surely you should be looking around for a good financial planner or advisor. I think that only someone who knows all or your details and your aspirations and retirement plans could answer your question. :D :D :D

[munruben]

Surely you should be looking around for a good financial planner or advisor. I think that only someone who knows all or your details and your aspirations and retirement plans could answer your question.
I think thats pretty sound advice but be careful, there are a lot of sharks out there. When I was in Sydney I invested in real estate and never regretted it but I didn't rent any of the properties I had built, I just sold them. In hindsight, I would have made much more money hanging on to them, renting them out and selling them later.
I think for young people, property is a good, long term investment. If you look back over the years, property has performed very well in the long term. Sometimes, even in the short term. There were areas in Brisbane where you could buy a house fo under $70.000 when I came here 5 years ago. Same house today selling for $250.000. Not a bad return. I don't think rental income will out perform other types of investments but the capital gain can be quite significant. But, please note, I am not advising anyone as what to do with their money, these are just my personal observations and opinions.

[Dan]

There are other options apart from property. You're still fairly young so 70k into superannuation now would be quite handy down the track. I think the tax rules in that area have changed recently too, in your favour. I owned a rental property once but I'm reluctant to do it again. A lot of it comes down to your "investor profile" which is something a financial planner will work out in your first meeting.

[RufflyRustic]

Hi Doughboy,

Definitely find a financial advisor and a darn good mortgage broker.

Ask the mortgage broker how many investment properties they have. If they don't own any, you may want to run very fast elsewhere.....

cheers
Wendy

[Toolin Around]

I think for right now rental rates need to substantially increase to make buying rental properties a worth while investment - at least on the sunshine coast. The place I live in rents for 300/week. I'm a two minute walk to the beach. A $200,000 5 year fixed rate mortgage including all applicable rates and expenses would be around 500/week. And for the foreseeable future it doesn't look like property prices are going to climb all that fast to offset the weekly loss of $200. It has me looking for other types of investments at this time.

[bitingmidge]

Ask the mortgage broker how many investment properties they have. If they don't own any, you may want to run very fast elsewhere.....
Hehe.

I was in a big shopping centre yesterday and was taken by two guys on a booth flogging an "investment system". Their poster said "Earn $100 k per annum working at home."

I actually stopped and asked them what they were doing there rather than working from home, and they said something that seemed to mean something like "go away smarty pants"!

Doughboy, the following is NOT investment advice, but a few things for you to to chew over with anyone giving you advice!

Superannuation: Hmmm... pay 15% on the way in, and 15% on the way out if you retire before 60 = 30%, or about the same (maybe more than you pay in personal income tax). OK things have changed again this week.... or have they?

Think about that, and the fact that if you buy a rental property with a long term view (say 25 years), you will only be paying off a very small percentage of the total loan. Even if history is made, and there's zero capital gain, how else can you get someone else to make contributions to your super?

Don't worry about negative gearing, if you can afford it, well and good, but the important thing is to be able to control the payment shortfall in the first few years. Hang onto it, treat your tenants well, give them a rent discount.... keep them there. You don't care about income from it, you just want someone to pay it off for you in the long term!

It's one of life's ironies that people who can't afford to pay off a house of their own, actually do so for their landlord!:oo:

Good luck! (and don't muck around with investment advisors who don't charge anything - they'll get their pound of flesh out of the "product" they sell you, and you'll pay them an ongoing percentage, as well as the fund manager).

Cheers,

P
:D

[Gumby]

Having been in real estate for 20 years, I think i know a bit about it.

here's a very short summary:
Negative gearing simply means that the repayments on your loan exceed the rental income. So, let's say you get $300 a week in rent, but your loan is costing $400 per week to service. In that case, you are negative gearing $100 per week, which is tax deductible. So, that $100 each week comes off your taxable income for the year, which could mean that the $100 a week is effectively only about half that in reality.


There are other tax advantages like depreciation allowances and any repair costs along the way are deductible.

Property is a long term investment, not short term. The ingoing and outgoing costs are too high to make it short term. the other issue is that you can't access your capital easily or quickly. You have to sell the property to do that.

I advise one thing first, if you haven't already - PAY OFF YOUR OWN MORTGAGE FIST!

And be aware of Financial Advisors. They can be great but I've sold homes for some over the years who have lost the lot. They often have a barrow to push by putting you into funds where they get a commissin. No problem there, just be aware of it. There have been several property trusts go down the gurgler lately. They offered higher than bank interest but like all those things, the higher the return, the higher the risk. kind of like shares in non blue chip stocks.

Property generally is a safe investment. In the business I recently sold, we manged over 600 investment homes for landlords who generally had one or two properties. I've seen it all. Good tenants, bad tenants, good landlords and absolute pains in the butt who we handed files back to.

If you want to go through it a bit, I'm quite happy to have a chat. PM me if you like.

[Metal Head]

Hi Doughboy,

Personally I would put your money into the share market. Anyone who didn't make a fistful of $$$$$$$$$'s in the last financial year then they are better investing it elsewhere. Remember if you buy shares and keep them for over a year then sell them, then you only pay tax (@ your personnal rate) on 50% of the profit:wink:.

I dare say there are some excellent financial advisors out there but they are thin on the ground. I had 3 managed funds since 2000 which I bought into via the advice given by Paul Clitheroe (the host) on Channel 9's money programme. It was only in the past 18 months that two of them turned positive whilst the third one was a bigger loser than the 2 winners put together :((.

If you do want to get into IP's then there aren't many better sites than this one to join. The archives have a wealth of info.

http://www.somersoft.com/forums/

Regards
MH

[Dan]

Superannuation: Hmmm... pay 15% on the way in, and 15% on the way out if you retire before 60 = 30%, or about the same (maybe more than you pay in personal income tax). OK things have changed again this week.... or have they?

:D
Yep, it's always changing. But at the moment it's supposed to be 0% on the way in and 0% on the way out (after 60). Maybe I'm being a bit naive.:-

[Gumby]

Yep, it's always changing. But at the moment it's supposed to be 0% on the way in and 0% on the way out (after 60). Maybe I'm being a bit naive.:-

It's 15% going in if it's before tax (salary sacrifice) and tax free coming out if you are over 60.

[Toolin Around]

If you want to go through it a bit, I'm quite happy to have a chat. PM me if you like.

Could I PM you and go through it also.

[rhancock]

Your question has no answer, I'm afraid!

The best advice I'll offer is to take your time. Put your cash in a 6%+ bank account for a year and spend the time talking to as many people as possible, including here, but also including as many financial advisors as you can find. Find experts in your locality - real estate agents, property managers, mortgage brokers, tax accountants. You need to be able to get expert advice from people you know well enough to trust. Also read as much as you can - At least your local paper, the Australian, and if you can, the Financial Review too. Remember, your're already earning 6%, so you can afford to spend time learning, rather than risk your financial future by rushing into something.

Your best weapon is the knowledge you have in your head.

One of the key concepts you need to learn is leverage. So for example, you take your 70k, and use it as a 20% deposit for a mortgage, which means you can borrow 350k. So now when your investment (either shares or property, or a share in a racehorse if you like) grows by 20%, instead of making 14k, you make 70k, which is all yours (except tax). This means you're making money by investing the bank' money. Once you've got a grip on leverage, then the rest is up to your team of experts - mortgage brokers to get you the best rates, lowest fees, etc, tax advisors to show you ways to make sure you not paying too much tax (remember tax avoidance is illegal), and financial advisors to ensure you are following an appropriate strategy, and to keep you up to date.

Final thing to remember is the investors golden rule - going back thousands of years - High Return requires High Risk - there is no avoiding this, only dealing with it. Anybody who tells you otherwise is trying to fool you.

Good luck. I'll see you in Millionaires Row in a few years!

[coastie]

$70k wouldnt buy you a telegraph pole, let alone a property in Sydeny or environs (incl ACT):no:

[kiwigeo]

Yep, it's always changing. But at the moment it's supposed to be 0% on the way in and 0% on the way out (after 60). Maybe I'm being a bit naive.:-

15% on the way in. 15% on fund earnings plus capital gains tax. From July 1st this year 0% on money taken out of fund providing you meet age criteria.

[Honorary Bloke]

$70k wouldnt buy you a telegraph pole, let alone a property in Sydeny or environs (incl ACT):no:

No, but it would make a nice down payment and would cause a mortgage broker to sit up straight and pull out an application blank. :D :rolleyes:

[Rossluck]

No matter how hard I try I can't think of a better use for that 70k than a new shed for me. :2tsup:

[Gumby]

Could I PM you and go through it also.

Of course :)


$70k wouldnt buy you a telegraph pole, let alone a property in Sydeny or environs (incl ACT):no:

It's not supposed to. I think you should read the post above yours regarding leverage. Nobody I know ever waited until they saved the entire purchase price before buying an investment property.




The best advice I'll offer is to take your time. Put your cash in a 6%+ bank account for a year and spend the time talking to as many people as possible, including here, but also including as many financial advisors as you can find. Find experts in your locality - real estate agents, property managers, mortgage brokers, tax accountants. You need to be able to get expert advice from people you know well enough to trust. Also read as much as you can - At least your local paper, the Australian, and if you can, the Financial Review too. Remember, your're already earning 6%, so you can afford to spend time learning, rather than risk your financial future by rushing into something.
Your best weapon is the knowledge you have in your head. !
Just be a little careful here. There is such a thing as getting too much independant advice, taking too long and buying the wrong thing. I've seen it many times. People come into the office who have been looking for a year ! What a waste of time. They often end up buying the wrong thing in my experience. A mate of mine did that. He ended up with the only real estate in Melbourne which went down in price over the past few years - an inner city apartment. He couldn't get a regular tenant while many others were still being built and for sale. He got out of it but lost over $100,000 in the process. I advised him to buy locally, at an affordable price where it was easy to rent out but he got all the good oil elsewhere. The one home I did show him has doubled in value since. :rolleyes::(

Everybody's an expert when it comes to real estate. If you want to buy a property keep it simple. Find the area you want (usually based on what you want to spend), check out the homes for sale and those which have been sold so that you have an understanding of the value in that area.

[Dan]

15% on the way in. 15% on fund earnings plus capital gains tax. From July 1st this year 0% on money taken out of fund providing you meet age criteria.
I don't think this is right.
For non-concessional contributions (personal after tax stuff like Doughboy's 70k) there is no entry tax. At least that's what I can work out from a number of fund sites I've looked at.
http://www.firststatesuper.com.au/GrowYourSuper/MakeContributions

[bitingmidge]

Everybody's an expert when it comes to real estate. If you want to buy a property keep it simple. Find the area you want (usually based on what you want to spend), check out the homes for sale and those which have been sold so that you have an understanding of the value in that area.

Advice doesn't come any better than that, and this is coming from someone who reckons free advice is worth what you pay for it!

cheers,

P
:D

[bitingmidge]

I don't think this is right.
For non-concessional contributions (personal after tax stuff like Doughboy's 70k) there is no entry tax. At least that's what I can work out from a number of fund sites I've looked at.
http://www.firststatesuper.com.au/GrowYourSuper/MakeContributions

But Dan, that means you've already PAID 30% or more on it in income tax! There just isn't the free ride that I keep reading about!! :oo:

Cheers,

P
:D

[ozwinner]

Buy into a managed fund (http://personal.macquarie.com.au/personal/products/managed_investments/managed_investments_category.htm) from here (http://personal.macquarie.com.au/)

Easier to get your money out if need be, and you dont have to worry about tenants breaking up your house.

Al :)

[Gumby]

I don't think this is right.
For non-concessional contributions (personal after tax stuff like Doughboy's 70k) there is no entry tax. At least that's what I can work out from a number of fund sites I've looked at.
http://www.firststatesuper.com.au/GrowYourSuper/MakeContributions

I think you're right but super is definitely an area for financial advice. There are lots of other issues like concessions you can claim against any capital gains tax liabilities by plonking a certain amount into super. It's a minefield and best discussed with a good accountant, not in here.

Besides, I think he's too young to be putting that much into super. You can't touch it until you are 60 so it's a long way off to be locking it away.

[Honorary Bloke]

Besides, I think he's too young to be putting that much into super. You can't touch it until you are 60 so it's a long way off to be locking it away.

Especially when he could be giving it to me. :D :D I am 60 and will be glad to touch it for him.

[Doughboy, please PM me your bank details. :rolleyes: ]

[rhancock]

Just be a little careful here. There is such a thing as getting too much independant advice, taking too long and buying the wrong thing. I've seen it many times. People come into the office who have been looking for a year ! What a waste of time. They often end up buying the wrong thing in my experience. (Annecdotal story about Gumby's mate deleted...)

Hmm... I do agree and I don't.... I think a year looking for property is a waste of time. I think a year spent researching investment options, finding experts, finding a real estate agent whose expertise you are willing to trust with your financial future...etc... is time well spent. It may not take that long, but I don't think it should be rushed.

Everybody's an expert when it comes to real estate. If you want to buy a property keep it simple. Find the area you want (usually based on what you want to spend), check out the homes for sale and those which have been sold so that you have an understanding of the value in that area.

Definitely, everybody's an expert, and their advice is worth what you paid for it, and often less than that. I agree that finding an area and sticking to it is a good idea, because then you can become an expert. Your choice should be based on forecast growth in property prices (from a trusty crystal ball) combined with low rental vacancy rates. - often inner city, but also fringe areas about to explode - in Brisbane, Logan, Redcliffe and Deception Bay and Springfield are good options at the moment. Another good thing is good public transport - train stations especially. Remember you have two requirements - a good supply of tenants, and high growth in property values.

All of the above is worth about 8% less than you paid for it.

[Doughboy]

See this is what I was lookong for... not a you should or a this would be best for you just some good ol' fashioned advice and thoughts.

Those of you who want a piece of the 70K can wait till I reach that millionaires row.

I would rather not tie it up in super at this stage as I want to be able to access the money if needed. Shares are not really an interest to me..... I just have not considered it that is all. I would like to go down the real estate line. I just feel that property is a 'real' investment. Race horses break down and shares are volatile.

I know the area I would like and I think 450K is a fairly realistic ballpark figure. DHA interests me but I am not sure if that is really what we want.

[arose62]

When I went through Uni, a demographics lecturer and an economics lecturer both strongly suggested property investment for my generation, and it's worked pretty well for me.

However, if I'd bought shares, I wouldn't have to pay:
* council rates
* insurance
* land tax :( :oo: :(( (wipes out the entire income from one house, in my case)

My tenants have generally been pretty good, but there was one set I passed over to a managing agent after they got way behind, and wouldn't respond to letters, phone calls, faxes etc.

Cheers,
Andrew

[boban]

There is nothing new in this advice, but here it goes.

The land is the appreciating part, the building the depreciating part. Just keep that in mind when you are buying that house you are going to rent out and not live in. I've seen people live in hovels, so dont buy based on what you would like to live in.

[kiwigeo]

I don't think this is right.
For non-concessional contributions (personal after tax stuff like Doughboy's 70k) there is no entry tax. At least that's what I can work out from a number of fund sites I've looked at.
http://www.firststatesuper.com.au/GrowYourSuper/MakeContributions

Youre right. Sorry I should have specified this. I was referring to pre tax contributions. Post tax contributions don't attract 15% entry tax but earnings within fund are still taxed 15% plus Cap Gains Tax.

The most effective way for people on medium to high tax bracket to save for retirement using a super fund is by salary sacrificing into same.

As someone has already posted, if considering the super route then get some advice from a financial advisor on same. The rules can be quite complex and theyre constantly changing. For those considering a self managed super fund do your homework, be aware of the costs involved and be ready to become an unpaid employee of the ATO.

[coastie]

My son is a mortgage broker and he is working seven days a week refinancing smart arses who thought they could afford properties,then fell over when something happens to them eg marriage break up,redundancy etc etc :roll:

[Doughboy]

The only problem I have with your train of thought Coastie is that if we had that attitude no one would invest. No one plans to divorce or get made redundant or major illness in the family but they are bridges that can all be crossed when needed. Hell no one would get married in the first place.

Dont get me wrong I dont look at the world through rose coloured glasses but sometimes you just got to take a calculated risk.

[ozwinner]

smart arses who thought they could afford properties,then fell over when something happens to them eg marriage break up,redundancy etc etc :roll:

I dont see how a failed job or marriage makes someone a smart esra :?

And I did see the smilie on the end, but still dont get it.

Al :?:?

[echnidna]

Maybe its coz they are smart ****'s that their marriage/job fell over :D

[munruben]

(remember tax avoidance is illegal),
Tax avoidance is legal. Tax evasion is illegal.

[arose62]

Doughboy,

one thing I've done a bit differently from most folks is find the tenants first, then send them out to vet the properties on the market, and choose a short list. Then, I've bought one of the properties that they've chosen.

It's saved my time, and the RE agents can't pressure you, or the tenants, because the deal doesn't happen until you and the tenants are happy.

I've had tenants in these deals stay for ages, and look after the place like it was their own, as they felt they had a stake in the purchase. (OK, "like it was their own" isn't necessarily exactly how I would have treated the place, but in general they've all done more than I expected, and never rung me to change tap washers or other trivial things).

Cheers,
Andrew

[Studley 2436]

Good for you Doughboy that you have an important thing down pat. You are choosing an investment that suits you.

Myself I am fond of the sharemarket but I am also the type who will be happy spending 1 1/2 hours a day doing the research. It is a must do thing. If you don't have an interest in that then don't buy shares.

Some lessons from the sharemarket that might help you.

Spread your risk. This has to be the number one truism. As far as real estate goes the riskiest bit is when you have only one property. I think this at this point getting a bit of super that you put something into each month is good strategy. Just so you don't have all your eggs in one basket.


When you buy you want to be getting something someone else will buy from you, whether that means getting a tenant or a future buyer. There is no point getting something that only you can see the value of. It might be a good strategy to look through the rental pages and see what sort of rent similar places are getting and then work out how much you are paying and how much rent you are likely to get. Will the rent pay the mortgage? If it does then you are pretty risk free eventually you will own it and it will have some value. The amount of the increase or decrease in value has not really hurt you as the tenant has paid the mortgage. In fact you will be wealthier as the tenant paid the mortgage. Of course getting the cream of a nice increase in property value is sweet but plan to be OK if there is no increase.

Here is where it gets tricky. Return on Capital for housing rental is about 5% it's not very much and I think in Sydney it is less. People get around this using negative gearing meaning you can deduct the money you are paying from your income tax. See an accountant to learn about this and devise a suitable strategy.

This might be the most important point seek professional advice. The tax system is a real bowl of spaghetti which would confuse a genius. I can't advise you and take what I have said with a grain of salt. I hope it helps but chew it over before you make your own decision.

At the end of the day you are the one who will have to wear it whatever you do.

Studley

[echnidna]

Theres a brilliant location in Sydney for the first "Doughboy Burger Emporium"
Heaps of passing trade coz its in the middle of a bridge....:D

[Pulse]

I tried asking the crew at somersoft (http://www.somersoft.com/forums/) for advice on renovation but they were useless, that's why I came here. Actually other way around, but you get the point.

Join Somersoft, you will learn heaps and they are almost as helpful as everyone here.

Cheers
Pulse

[boban]

Here is where it gets tricky. Return on Capital for housing rental is about 5% it's not very much and I think in Sydney it is less. People get around this using negative gearing meaning you can deduct the money you are paying from your income tax. See an accountant to learn about this and devise a suitable strategy.


The 5% would only apply to the rental, what about the capital gain, which like with shares, is where the money is. No one refers to the great dividends they receive from their shares and quotes that as the return on capital.

[rhancock]

Thats right. The property we own has earnt at most $900 a year, and most years made a loss. But it was $110k when we bought it in 1998, and is now worth $260k, so growth has been $150 over 9 years. Thats extra value is what allowed us to buy the house we live in.

[Studley 2436]

Boban I was only considering rental income. It is one way to look at the investment. My reason for this is that there are expenses that require liquid funds to pay. Capital assets can be used later as they build to finance new investments such as a second property but do not pay the bills.

One of the beauties with the share market is that you can liquidate your stock quickly. You can't do this with a house so the strategy must be different. Of course as a house increases in value which it will do over time the rent also increases but your investment remains the same, so the 5% if the house doubles in value becomes effectively 10%. Housing is a long term investment and should be considered that way. One of the things about investing in the share market is that the tax system is set up so much in favour of housing investment. I have asked myself lots of times if the share market is better. Each has it's advantages and I don't say one is better than the other. As I said at the beginning everyone must make their own decisions and make their savings in a way that best suits them.

Studley

[boban]

Studley, I agree with you. Its just that to focus on the 5% is little misleading especially given the nature of the investment. You have outlined it well in your last post though.

[munruben]

I have asked myself lots of times if the share market is better.
Share market, no place for the weak hearted though:D

[Marc]

Hum...I wonder if Doughboy has found his investment property.
If not, perhaps a look at this forum may bring some more info on the subject from people who have, some of them, several dozen and some few, hundreds of properties.
www.propertyinvesting.com/forum

Dong go ask them about woodwork though.:2tsup:

[Marc]

http://www.propertyinvesting.com/strategies/negativegearing
Negative Gearing... Friend or Foe?

Often proclaimed as a property investor's best friend, negative gearing is a concept that few people really understand. Sadly this ignorance is causing many investors a lot of financial heartache.
Let's review the basics of negative gearing, the way it works and how unwary investors are being willingly coaxed to buy a so-called asset that's purposefully designed to lose money.

In his special article entitled 'Positive Cashflow Returns Through Property Investing (http://www.propertyinvesting.com/strategies/positivecashflow)', expert property commentator Steve McKnight (http://www.propertyinvesting.com/user/stevemcknight) rightly pointed out that there are two ways to make money in real estate. Either through capital appreciation, when your property value goes up, or via positive cashflow returns, when you have more income than expenses.
And in the world of property investing, the most common way that investors seek to profit is through capital appreciation, which is why location is regarded as critical to real estate success.
The preferred weapon in the fight to achieve capital gains returns in Australia, New Zealand and Canada is something called negative gearing.

Negative gearing seems simple enough - buy the right property in the right location and then have the tenant and the taxman partially fund your repayments while you sit back and profit from the appreciating property value.
But can using property to make money be that simple? In a rapidly rising market, as was seen in most of Australia between 1996 and 2002, yes - it can appear to be that easy. Just hop on the escalator and ride the easy way to the top.
Yet there quite are a few investing pitfalls that aren't discussed in the glossy sales 'off the plan' brochures, at the free seminars, or on the carefully tailored TV reality shows.
So let's take a full "warts 'n' all" look at negative gearing to see when to use it... and when to avoid it like the plague.
...........................................................................................................
Read the whole article here
http://www.propertyinvesting.com/strategies/negativegearing

[prozac]

Doughboy, Firstly don't invest in the stockmarket. You need a certain amount of skill and the right advice, and besides the market is about to collapse.

Don't buy an investment property for negative gearing!!! Negative gearing was great when the tax rate was 60c in the dollar, but it means much less now that the tax rates are more palatable. You buy investment property for yield, but mainly for growth. ie: You want to see the value of the property rise over time. If you are buying for the negative gearing then you are buying for all the wrong reasons.

If you have bought well and you have good tenants and good forward growth prospects, then "negative gearing" is just icing on the cake. It pales into insignificance when you compare it to the increase in the value of the property. Buy for growth.

Perhaps the property is in a location and position where you would one day wish to live. In the meantime the tenants are helping to pay off the mortgage and you can plan for the day when you can live there yourself. Alternatively you may not be able to afford to buy where you wish to live. So don't! Rent where you wish to live and buy where research tells you there are good growth prospects and steady tenants.

Don't buy off the plan or buy from a new building as you are only lining the pockets of the developer. The adage "buy the worst house in the best street" is the one to adhere to.

There are so many variables it is difficult to impress them all here, so I am happy also for you to pm me if you wish. I do have a bit of experience in this field which I don't mind sharing. You are thinking along the right track anyway by wanting to invest in property.

Property is not sexy but as GUMBY points out Property investment is a long term excercise. If you remember that, you will be on the road to a long and succesful love afair that will stand you in very good staid. Good luck.

[Studley 2436]

All good advice there from Prozac. There is a real risk of a market collapse, well actually more of a readjustment. People seem to be buying on the bigger fool principal. The notion that it will go up forever and some bigger fool will buy from you at an even more inflated price. I think it is all bit excited at the moment and there will be a correction to take the heat out of things a bit. Then it will all start going again.

Studley

[prozac]

Beware the long slippery slope. Time to sell down your shares.

[prozac]

I hope that no one has been burnt with margin calls.

Shares are starting to look cheap, but don't get caught buying into these little rallies. I think that there is a lot more downside in prices before the dust begins to settle.

prozac

[Studley 2436]

In one way I would disagree with Prozac. The Share Market is a good place to invest provided you have a good strategy. This includes a lot of reading and keeping up with things.

BUT most of all if you say I am an investor and am going to buy companies that make profits and pay dividends over time you will come out in front.

Speculation is a different issue. If you speculate you are buying on the premise that something will happen to boost your stock and you can sell at a big profit. It can be done but you will take a lot of haircuts as well.

Warren Buffet has become the second richest man in the world on the premise of buying stock based entirely on the company's profitability compared to it's share price. He bought stocks that had good profits compared to their listed price. Eventually the market woke up and he made a gain on the price but even if it never happened he would get the dividends and a fair return on his investment.

Studley

[prozac]

Studley, I agree with you completely. The stock market like real estate should be viewed as a long term strategy. There are times when both markets become overheated, and now is one such time in the stock market. Whereas stock prices on many shares have been pushed beyond their real value, in the current market expect to see these shares pushed down below their real value as institutions try to limit losses, and also try to meet their weighted levels of exposure.

My comments last year were in anticipation of a market rout. Now that it has started all I am saying is that it is time to stand aside and wait until you see fair value or even shares that are oversold. And they will get oversold, but not yet. When historical prices tell you that a share today is worth less than it was 2 years ago, BUT that profits have not been downgraded and the assets are intact, then "fill yer boots". It may take 12 months or more to turn around but you have bought some nice blue chip shares showing solid yields you never would have expected to achieve. The underlying value of the share has not diminished so this is what you have been waiting for, a good quality share with a better than expected yield. Then sit back and wait for everyone else to realise that this is still the same company it always was.

I cashed up last year waiting for just such an opportunity. I am not suggesting you do not invest in shares. I am merely stating my belief that the market still has a lot of downside risk and that now is a good time not to be putting any more of your hard earned savings into it.

Be patient and you will be rewarded.

prozac

[Calm]

Prozac I totally agree with you on the share market at the minute and i think property is not the best option at the moment either.

i think with the sub prime problems in USA and the more than likely interest rate rise in Australia, the huge increase in house prices over the last few years i think property is where you said shares were. I think property over the next 6 months or so will also have an "adjustment"

Just a gut feeling i could be wrong but the signs are there.