Flashcards in Basics Part 1 - Assess the Property Market Deck (44)
What does take “A RIDE” : Evidence stand for?
A = Actual Evidence
R = Ratio of Affordability
I = Interest Rates
D = Demand and Supply
E = Employment and Economy
What’s the 1st Fundamental Principle of Property Investing?
It MAKES MONEY, consistently over time and is the most common vehicle for wealth amongst the wealthy
It makes REGULAR INCOME and CAPITAL APPRECIATION
Why do we do take A RIDE ?
To assess where the markets at and where it may be going in the near future (for any market big/small)
What does ACTUAL EVIDENCE mean?
What do we “Actually” KNOW about what’s going on in the property market at the moment
When we’re looking at market evidence, is it better to look at short term evidence or have a longer term view?
It’s much better to have a LONGER TERM EVIDENCE, to be confident about our decisions.
Ie. 50 year price chart growth vs. 1 year price chart growth
On average, in the UK, how much % has property prices increased per year for the last 1000 years?
10.2% per year
What is the Rule of 72?
Take the number 72 and divide by rate of annual % growth will give you how long it takes for the asset to DOUBLE in value.
————-—— = 7.05 years
% growth rate
What does the “actual evidence” tells us about property market?
- That over the long term, prices will go up.
- There’s “wobbles” in the market that create opportunities
What’s the 2nd Fundamental Principle of Property investing?
EVERYBODY has to live somewhere, irregardless of the market place and prices
In the UK, what happened to the Private housing rental sector that was so significant?
It surpassed the social housing sector and is now the number 2 provider of rentals
Because everyone has to live somewhere all the time, what is the opportunity in this?
When the market is rising go for capital first
When it’s static or falling go for the income first or residual (cashflow)
When assessing your Actual Evidence, what are some important key factors?
• Longer term is more reliable
• Different evidence data for different housing types; flats, units, houses
• 3rd party and independently accredited
What are the different levels of “Evidence” in terms of reliability?
• General - newspaper, TV, Radio, Taxi Driver conversations, Aunty Flo (unreliable)
• Local - www.checkmyarea.com (little bit more reliable)
• Comprehensive - www.whizzamania.com
• Very Specific - www.zoopla.co.uk ; Mouse Price
• Very Exact Information - Govt. Land Registry website
Apart from market trends and data, what other ACTUAL evidence is important to note?
• Income Returns
• Number of Mortgages; also the LTV/LVR, styles of mortgage products
• Amount of mortgages - and types
• Number of Sellers and Buyers
• Speed and strength of sale
- # of days
- Asking-to-Offer price ratio
What generally does the number of sellers and buyers tell us about the market?
5 buyers vs. 55 Sellers is a flooded market and vice verse
These figures are usually issued by conveyancing groups or real estate agent groups
Actual Evidence needs to be __________, ___________ and ___________.
Actual evidence needs to be Credible, Reliable and Fundamental.
What is Rainbow Chasing?
Rainbow chasing is chasing PREVIOUS DATA.
If a market has already shown to increase last year by 20-25%, the chances that the same suburb will increase by 20-25% again this year is very slim, UNLESS there’s other evidence to support it.
The R for Ratio is about telling us how ___________ property prices are.
The R for Ratio is about telling us how AFFORDABLE property prices are.
Average house price
—————————- = Ratio
If the Ratio is BIG it means that __________. If the Ratio is SMALL it means that ______________.
If the Ratio is big it means that LESS AFFORDABLE. If the Ratio is small it means that MORE AFFORDABLE.
150k house 150k house
————— = 10 Vs. —————— = 3
15k salary 50k salary
If houses are MORE affordable, what does this mean for the market?
It usually means DEMAND is going up because it’s easier and more affordable to purchase houses
If there’s a small Ratio in an area that has a cheaper median house price what could this potentially mean?
If there’s a small Ratio (ie. HIGH AFFORDABILITY :. potentially higher demand) in an area where the median house price is cheaper than the country, it potentially means that this is a good place to INVEST.
Because people can afford to buy, demand is going up and it’s cheaper to get a house.
What is the general long term interest rate?
Roughly around 4-6%
Does it matter what interest rate is when deciding whether to invest?
All you require to do is find the deals that function for that particular interest rate, at that point in time.
If interest rates are too high, then what could you potentially do?
You could basically borrow your money in a different currency, from another country that has a more favourable, cheaper interest rate.
What is mortgage rate vs. interest rate?
Mortgage rate is usually higher and, is the rate that includes the “cut”, that the mortgage lender/banks get.
If demand is high, but the supply is static the price is...?
If demand is high, but the supply is static the price is GOING UP.
If demand comes out of the market place, but the supply is static the price is...?
If demand comes out of the market place, but the supply is static the price is GOING DOWN
What other levels can we assess demand and supply?
In the UK, what was published regarding the “normal demand”?
260,000 new homes need to be built every year, but they have built only an average of 115,000 houses a year
That there is a shortfall of 1 million houses in order to adequately house the population.
It also implies that this is up to the private rental sector to take over as social housing will not be filling this gap anytime soon