Advice for Investors

ABC News last night phrased the question "will this spring be a boom or 'ka-boom'". It will be interesting tonight to see the days results... not so much the auction results themselves, but how the media decides to interpret them, since they can be very powerful in changing our moods.

The boom in 2003 came to an end abruptly, with the artificial imposition of a NSW Vendor Tax in 2004 really not helping the situation.

Interesting that now, 11 years later, we have APRA imposing restrictions on investment-lending and supporting higher interest rates for investors. We may see restrictions on SMSF lending and there's pressure to change negative-gearing legislation, which has artificially propped up Sydney prices for decades.

Certainly there's speculation that Sydney prices may soon be on a path of plateauing. But why does everyone believe prices 'will just level out' when evidence suggests after booms, prices always come down. Do we never learn? Or is this time different? Given population growth and physical geographical boundaries of Sydney (the ocean and the blue mountains), will the limited supply of stock in Sydney always support an upward trajectory from now on?

It is difficult to find a graph that truly illustrates Sydney property values over time, and this is why. During bad times, investors are reluctant to sell. And in this interest rate environment, they wont need to. Also, unrealistic home-owners, who haven't accepted that a correction has taken place, simply decide not to sell. I remember in 2004 so many auctions had no bids - young people today just can believe that, but in 2004 and 2005 agents were thrilled just to have one genuine buyer at an auction.

Values as we refer to them in banking circles is only driven by recent comparative sales. If no comparable salesno effect on values.

So, the first point I make is that we'd initially see auction clearance rates down rather than a sudden 'price decrease'. Then just fewer auctions as the property section in the Courier gets thinner and thinner. Just like the stock market, cycles display a 'head and shoulders' pattern. After years of massive growth, when the market finally does come off the boil, those who have been waiting for such an event, dive in to buy. So any slow-down doesn't happen overnight. Uncertainty is the result, which has been absent for 3 years here is Sydney.

So investors some hesitation in the market brings great opportunity. As a client said to me last month the market hasn't necessarily slowed down, but vendors are now listening (before an auction, to accept an offer)'. Currently, some properties will sell well and as luck would have it some will not. iChoice clients include some of Sydney's most seasoned investors and I can tell you their biggest secret in picking up bargains... they did not go to 5 auctions and bought 2 ripper properties - they went to 35 auctions and bought 2 ripper properties.

Yep, going to auctions with a blank cheque in your back pocket needs to become your Saturday sporthey it can actually be funjust don't get emotional and enjoy the experience for what it is. You gotta be in it to win it.

And by the way if it's raining or there's a massive traffic jam, or it's the grand final weekend... even more reason you must be there. Go against the flow.

First, get your place/s revalued, have your pre-approval in place and tweak your lending so it's structured spot-on to get all the tax benefits you can.

The reason most investors come to iChoice is to re-value, re-structure and lastly to re-price their lending. The priority is always to unlock their equity (saving a few thousand a year with a better rate is just a bonus). Having a pile of cash in your non-transactional offset account means you have an advantage over others at auction.

Even if your lending structures are spot on, you really should be nudging your friends to see a top-notch mortgage brokersome people are just too busy with their work and think it's all too hard... it's unfortunate that they end up lagging behind. Please let them know how simple it is.

St George Bank will pay your fiends $2,000 or $1,500 to bring their loan across now (packaged loan over $250K but not from Westpac of BankSA).

What a great instant incentive.

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