Product Newsletter 1 June 2009

I don't think I'll be sharing an investement property with Ricky now.
On Tuesday he won the lottery, then on Friday he found his soul mate.


on a more serious note:

WHAT EXACTLY IS A “VALUATION”?


When you boil it down, a “valuation” is a figure which is manipulated for the benefit of the party who controls the process.

For example, an “Insurance Valuation” for an investment property with a market value of $400,000 would perhaps be based on the construction cost of $200,000 adjusted for replacement is say two years’ time – say $220,000 plus $15,000 to remove the rubble. Consequently this valuation would be $235,000 for a structure that costs $200,000.

Then there are “Bank Valuations” which in a rising market could well be 100% of the purchase price, as banks anticipate that should they need to realise on their loans by selling the property, they expect to be able to recoup all of their loan via a quick sale.

But in a sluggish market, a quick sale may not be possible, but this is the focus of their valuations. With a low valuation, they may only lend 85% of the purchase price - $340,000.

Not that this has anything to do of course with market value – a $400,000 property today can still be expected to double in 7-10 years to $800,000, not to $680,000.

And a third valuation is “Parity Valuation” used by the Brisbane City Council to value inner city apartments in determining council rates. This valuation appears to value such apartments about 40% above what a real estate agent would say they’re worth, but when the General Rate is applied to this “Parity Valuation” – there is a higher rates income for the BCC.

So there you have it - valuations are nothing more than tools to benefit the party which controls the process.

WHY ARE SO FEW WEALTHY TODAY?

Why isn’t everyone wealthy?

I have looked for the answer to this for years, but only in the past few decades a field of inquiry has emerged called “behavioural finance”. This study of human behaviour has shed new light on how we make investment choices.

The problem appears to be that the human mind is hard-wired to participate with the group. This was a valid approach for society to take for millions of years, and is still valid today for animal migration.

It was also valid for mankind up until the economy developed to such an extent that it allowed individual self interest (and entrepreneurs) to flourish. But we’re only talking here of the past 200 years.

Today we are busy people in a complex world. We cannot possibly give in-depth consideration to every choice. So we revert to type - the brain takes a shortcut in evaluating our options. As a consequence, we “follow the herd”.

So it comes to investment decisions, others often influence us, even when following in their footsteps is not necessarily rational or in our best interest.

Which is why my (very successful) investment approach is so different. It looks solely at the numbers, and ignores any emotional attachment to what the vast bulk of society thinks is “the obvious way to go”.

If you would me to help you explore your options, contact me – Bernard Kelly – anytime. My email is admin@retirelaughing.com


IMPLICATIONS OF A SHALLOW RECESSION …


The Reserve Bank of Australia thinks this recession will soon end.

China and South Korea are moving ahead, and Barack Obama sees “green shoots” in the American economy.

What all this means is that interest rates will soon be on the increase. (Fixed interest rates have already started to climb).

So there is now a window of opportunity, but it’s closing.

Act now to tuck something extra aside for your retirement while interest rates are still at historic lows!

If you would me to help you explore your options, contact me – Bernard Kelly – anytime. My email is admin@retirelaughing.com


KEY OBJECTIVE – TO MAKE MONEY

The key objective with any investment is to make money.

Which is why I share with my private clients those investment properties that have the best chance of generating the most out for the least in.

As a succession of long stay tenants is fundamental, your investments should therefore appeal to the ideal tenant, as well as providing the best depreciation for yourself as an investor.

Then you locate that product where the rents are relatively higher, where land tax is lowest, where capital growth is forecast to be fastest and adjacent to major diversified employment nodes.
And as you know, all this comes together in the south west suburbs of Brisbane.

But don’t forget the packaging to ensure that you achieve the best outcome – the funding, the conveyancing, the insurance(s), the quantity surveyor, a specialist property accountant, the asset manager, and your estate plan.


BRISBANE HOUSING PRICES FALLING – OR RISING?


The Australian Financial Review ran a headline on 7 May – Brisbane values were “stabilising after correction”.

The article had a sub-head “down 6.3%” in the twelve months to March. This related to statistics published by the Australian Bureau of Statistics, although RP Data said (for the same period) houses had fallen 3.42%.

On the other hand, another group - RP Data - said houses in Brisbane had increased 1.42% in the March quarter!

Then there was a comment by the Michael Matusik (of Matusik Property Insights) that houses under $500,000 had actually increased in value 10% in the past 12 months.

The explanation to this confusion is that the global number – in this case the “down 6.3%” – is heavily influenced by the weight of expensive homes that the wealthy are having difficulty in selling at their asking price. If they sniff a buyer, they are willing to discount if that is the only way to exit.

However you will now understand why my very successful strategy has its focus on houses up to, but just below, the median price. There is always solid demand for housing by the ordinary family – under the $500,000 figure.

But there is no need to go that high. You don’t get the same rent proportionately the higher you go. $400,000 is quite OK, and you’ll still have equity to do your next investment property in 18 months or two years time.
If you would like me to explain other elements of my strategy, feel free to contact me – Bernard Kelly – anytime. My email is admin@retirelaughing.com

And remember – if you look back since records began, house prices have always tripled every 21 years, irrespective of economic collapses, interest rates of 22%, changes in government, world wars, the recession we had to have, you name it. Which is why they say “house prices double every 10 years”.

So now is the time to invest for your retirement, as it the benefit will be there when you need it.


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