Monday, August 1, 2011

Can't read or write? Invest in property!

It's been a while since I've posted anything about property. There are multiple reasons. Firstly, the slow decline I have been expecting is playing out, but it's a slow process and difficult to come up with varying commentary. Secondly, there is little for me to gain from researching and analyzing housing statistics given that I have no intention to short the market or financially benefit in any other way in the short term (my time is better spent focused on where I can and am turning a profit). Thirdly, honest and extensive coverage of the Australian housing market is well and truly being provided by Macro Business. It's likely that posts on property will continue to take a backseat to my coverage of precious metals and related stocks. That said I couldn't help but share some details from a forum post I read this evening...

On a well known property investment forum a user has posted a story about a house they were selling. While the house was for sale they were traveling with a friend (who is described as 55yo, too lazy and scared to buy an investment property, but has always wanted to) and essentially this 55yo friend offers to buy the property and ends up doing so. The user recommends the 55yo a broker and explains that it's "easier than they think" and all they would have to do is "understand the math and sign the docs".

Up to that point in the story the only thing I am thinking of is how the friendship might be affected if the property deal doesn't work out to be a favorable one and also concerned about someone of that age being babied through the process when in reality it is a serious financial decision.

Towards the end of the story comes the bombshell, so as not to mince words, I am quoting it:
He (BB: the 55yo) is now the proud owner of 2 properties! I was at a bbq yesterday and he shook my hand and said, thank you. It was quite heartfelt actually. He followed, saying; Thanks so much for giving me the opportunity to get into the market, I never would have done it otherwise. That felt so good to hear. He then told me that he is going to pick up his third quickly, sit on them, and then sell them all to buy his dream bush property. All this from a guy who cannot read or write well. He turned down my offer of lending a few good property books because he cannot read them. Most anyone can invest in property.
Now I have nothing against those who can't read or write well. It's a serious problem in Australia for many adults, but I have to question the sense in encouraging someone into property investment that is unlikely to understand the contract for their mortgage...

Luckily the forum this was posted on does have some users with a sensible viewpoint and this reply summed things up nicely:
The risks pointed out are very real - 55yo illiterate newbie investor, has been told all he needs to understand is the maths and to sign a few docs (even though he can't even read the docs he's signing).

If he has rejected your investment books because he can't read, how does he understanding yield, effects of interest rate hikes (wants 2 IP's), tax, buffers, structuring loans, how long can he hold if he loses his job? Can he easily get another at his age? What if he gets sick? Can he hold and for how long? What is his plan?
Some people should be investing time and money into their own personal development (learning to read and write would be a good start for the gentleman in this story) before they go and start trying to manage their own investment portfolios.

It scares me that there are these sorts of people out there leveraging themselves up to 20:1 to buy property in Australia.

Investing in property is seen as a bullet proof investment by many Australians, but I suspect over the next few years we will find out just how badly property investment here can go.


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  1. According to Macro Business, new home sales just tanked, so there you go...

  2. So the guy managed to offload his now unwanted properties to some loser mate of his (which was the smart thing to do on his part and he knows it I'm sure) then comes onto the site trying to tell everyone how good and kind he is. If they are so great, why doesn't he want them anymore? I think we all know the answer to that.

    But geez, to come on to a forum and tell everyone "look at me I'm such a wonderful person!" Some serious delusion there.

  3. BB, who do you think will be picking up the tab for people like the 55y.o. when it all goes pear-shaped? Yes, Australian taxpayers.

  4. Bang on Turdle GG, we will socialise our property bubble losses just like everywhere else!

  5. Of course the obvious question was to ask his mate why he was selling.