BEWARE THE FORECASTERS

BEWARE THE FORECASTERS

Here is a reprint of an article I wrote in October 2008, the month of the GFC.
Have a read and see if there is any relationship to our experience over the past 31/2 years and keep it in mind when the prophets of doom next start predicting the end of the world.

A LITTLE CLARITY IN A WORLD GONE CRAZY

Lots of people are expressing their fears in response to the turmoil on the stock exchange and some of the talk has moved to the future of real estate in W.A.
First and foremost is the concern about the “R”word (recession).
While am not an economist I cannot see how this state can go into recession
given the many pluses which exist here.
(Just yesterday I received an email from the Chamber of Commerce and Industry expressing the same sentiment)
Australia has a rapidly increasing population (260,000 in the past year) and W.A. is picking up more than it’s share.
They have to live somewhere and the building of new homes is not keeping pace.
Remember the key to all things financial is supply and demand.
It is also about what people believe and unfortunately many do not read beyond the headlines.
What about the talk about real estate values dropping by 20%, 40%, or similar amounts?
The way I see it every time a new subdivision of land is being produced, each metre of road is more expensive than the last subdivision.
That is due to rising costs of fuel, wages, and producing kerbing, etc.
The same can be said of constructing a house.
Each brick, metre of timber, wages, etc. will be more expensive than one built last year.
So that brings in to play the replacement cost of homes.
If you look at many of the homes for sale today in Rockingham, you will find they are below replacement.
The other factors which help to make Rockingham stronger than other areas is the fact that 70% of Australia’s navy families are based here and they spend there money right here every week.
Add to that the number of families for whom Kwinana industrial strip supplies employment and we have more factors which underpin our local economy.
The events in the U.S.A. bear little direct comparison to Rockingham or even Australia.
In the USA they can unilaterally opt out of their mortgages with no further liability just by returning the keys to the lender.
Here you will remain indebted to the lender if you were to abandon the property.
That is why there are so many homes for sale there.
Traditionally investors have returned to the property market when rents have approached 5% Gross return.
The easy way to work that out is to say that if a property is rented at $260 per then investors have in the past been interested when the price of the property has approached $260,000.
We are getting to that stage with some homes now.
The only way to turn a paper loss into a real loss is to sell.
So if you have the option at the moment it is better to stay out of almost any market place if you are a seller.
If you are a buyer look at buying as soon as you can.
Do not make the mistake of waiting, thinking you can pick the bottom of the market.
Did you pick the top or the bottom last time—odds are the answer is no.
The best definition of an economist I have found is “An economist is someone who has predicted 28 out of the last 3 recessions.
And please keep in mind that the job of a newspaper is to sell newspapers not necessarily to report accurately.

Ross Cutten

Owner / Director

Noble Real Estate

HOW TO CLARIFY YOUR THINKING IN MAKING REAL ESTATE DECISIONS

After 28 years of helping people buy and sell I have found that, in modern times a lot of people suffer from what Zig Ziglar referred to as “stinkin’ thinkin’”.
Real estate salespeople are often heard to lament “Why can’t they make up their minds?”.
Hopefully the following will help, having been gained from a variety of the best trainers in the world as well as my own experience.
My first suggestion is;
Divide a piece of paper vertically with a line.
Put a heading on the left “Lifestyle”
Put a heading on the right “Investment”

The primary reason people get confused is that they try to combine these two without giving priorities.
For example if you are going to invest in a property for some years but also want to retire to the property you may find the best investment property you don’t ever want to live in and the home you would die to live in will be a poor investment.
Once you have the investment vs lifestyle columns sorted you can give them priorities.
As an example, if a retired couple are moving because one of them has health problems then the primary reason for selling is one of lifestyle. Given this, they should give a low priority to whether prices are up or down, assuming of course they can afford the move.
I have seen many couples who are divorcing let the property deteriorate in order to harm the other party without paying heed to the fact they are also hurting themselves. The best approach if they can’t agree on how to split the proceeds is to sell the property while it is still presentable and have the Settlement Agent put the proceeds in a trust account while they sort out who gets what.
Let’s look at some lifestyle versus investment decisions.
Reducing the mortgage so one party can stop work – lifestyle.
Health issues – lifestyle.
Inability to accept current values – investment.
Trying to pick the top/bottom of the market – investment.
Buying a special rural property – lifestyle.
Comparing the current value to the top of the market instead of the difference between what you paid and the current value – investment.
Hopefully this may help someone get to the stage where they can move on.

Ross Cutten

Owner / Director

Noble Real Estate

AN INTERESTING FACT ABOUT REAL ESTATE AGENTS

 

AN INTERSTING FACT ABOUT REAL ESTATE AGENTS

Most of our owners of properties in our rental department are heading towards being better off in their retirement planning than most real estate agents in Australia according to Robert Bevan of Best Practice, one of Australasia’s foremost trainers.
The reason is that 60% of real estate agents have a return of 5% from their businesses after taking out their personal sales and have no assets when they retire.
The next 30% have better returns but still no assets.
How can this be?
I think the simple answer is that they are like the average person in this country....living to 110% of their income.
The other reason is that they often fail to follow their own advice or fail to understand the way to achieve a financially secure future.
My experience is that people trying to get ahead fail to understand some basic principles of securing a comfortable retirement.

The kinds of boring things like
1. Make a plan
2. Stick to the plan
3. Understand that there is a direct relationship between risk and return.
4. One of the key features of any sound plan is to protect what you already have through insuring your income and life.
5. Understand the rule of 72.
6. Decide what you are prepared to give up to get what you want.
7. Never stop learning.
8. If it sounds too good to be true...it probably is.
9. Understand the difference between speculating and investing.
10. Only speculate with money you can afford to lose.

If you ever care to discuss your ideas about the above you can always contact me on
rosscutten@noblerealestate.com.au

Ross Cutten

Owner / Director

Noble Real Estate

SOME BRIEF POINTS

SOME BRIEF POINTS

Some brief points relating to real estate as opposed to other means of investing.

1.      “Get into land son, they ain’t making any more of it”.

2.      According to Maslow, humans always satisfy their needs in a pre-determined order.....my experience suggests that means food first, then clothing then shelter.....there is only two ways to obtain shelter...buy it or rent it. That’s why demand will always rise where the population is expected to rise (W.A. for the foreseeable future).

3.      The rule of 72 will help you work out the effect of inflation on property values and the expected growth rate....27 years selling real estate suggests property grows at roughly 2% in excess of inflation. Low inflation...low long term growth. In the 1980’s when inflation was 8%, property increased by 10% per annum (thereby leading to the “common wisdom” that property doubles in value every 7 years.... 72/10 ).

4.      The cost of the elements of construction and the cost of developing land can be expected to rise as wages, fuel, bricks, energy and other costs rise.

5.      Real estate is a long term investment....how long?....a minimum of 7 years preferably 10. Anything else is not investing, it is speculating. Some people have made money in real estate by speculating but more have made money by investing.

6.      Real estate is for control freaks. You decide when to buy, when to sell, how well to maintain or improve the property, etc. If you invest in shares you are handing over control of your investment to someone else, usually the management of the business or company you are investing in. Consider the history of these companies once considered prime investments. Adelaide Steamship, IXL, Enron, HIH Insurance.

7.      Cash gives you a return on your money and is maintenance free, but is at the mercy of inflation (Rule of 72 again.)

8.      The longer the history of markets, the more it appears the smart money looks at what the herd is doing and does the opposite. As Warren Buffett has said “When everyone is being greedy, be fearful and when everyone is being fearful, be greedy.

Ross Cutten

Owner / Director

Noble Real Estate

WILL THE SECOND .25% INTEREST DEDUCTION REVIVE THE SALES MARKET?

WILL THE SECOND .25% INTEREST DEDUCTION REVIVE THE SALES MARKET?

1/2/2012

 

RE; MY BLOG 7.12.11

In December I wrote this blog.

The simple answer is no.

The current low demand from homebuyers compared to sellers is attributable more to a lack of confidence than the rate of interest.

Buyers fall for the trap of trying to pick the bottom of the market and they will fail, but it will not stop them trying.

The one area where the drop in interest rates may affect buyers is with investors.

We have only 2 properties vacant in our rent roll of over 500 managements which makes the vacancy factor less than .4%.

REIWA’s vacancy factor is 2.4% (average is 3-3.5%).

According to the forecasters that should lead to higher rents being charged next year, increasing returns.

We already have property with gross rentals above 5%, which is the level at which investors have bought in previous years.

So watch this space.

So where are we now?

The buying public have decided at the moment that values are too good and have lost their fear.

We have had a big jump in numbers at homes open and more importantly, in people prepared to put an offer on paper.

To all you buyers who have been sitting on the fence....you may have missed the bottom of the market you thought you could pick.

It won’t be a trend until the end of March, but are you prepared to bet against it with interest rates tipped to fall further.

Don’t say you weren’t warned.

Ross Cutten
Owner / Director
Noble Real Estate

THE ESSENTIAL ELEMENTS TO CREATE A SUCCESSFUL BUSINESS

THE ESSENTIAL ELEMENTS TO CREATE A SUCCESSFUL BUSINESS

For a small (or even a large) business to be successful requires 5 essential elements.

1.      Good management.

2.      Systems.

3.      The right staff.

4.      Top class state of the art training.

5.      “A Name”.

Looking at these in reverse order;

            “A Name”? This is the reputation of the business not necessarily the fact that it is part of a well known group or franchise. Noble has been part of enough groups to know that the while the name of the front door may be the same, the “Name” varies widely depending on the individual branches attitude to all the other elements.

            Training. There has been a variety of phases in training in our industry and I am sure this has applied in others. The governments have tried to compel training in business with varying success.

            A few home truths about training;

A.     You can’t teach anyone anything they are not ready to learn. If you force an individual to train they will actively fight the acquisition of knowledge.

B.     An employee’s attitude to training reflects directly in their attitude at work. I have never yet seen someone unwilling to train who went to the top in his career.

C.     There is a huge difference between “knowing” and “doing”. Most training is wasted because it never hits the road, but just remains notes on paper.

D.     The implementation of knowledge is more important than the acquiring.

The right staff. The best thing in the book “Good to Great” is the requirement to

“Get the right people on the bus, the wrong people off the bus, then get the right people in the right seats on the bus”. In order for a business to grow and prosper in the long term, management has to follow Michael Gerber’s plan in “The E Myth” and make themselves dispensible. This can only be achieved through management delegating and that will only occur where management has faith in the staff.

Systems The more systematic the approach to the daily functions of the business, the smoother the operation and the less stuff ups are likely to occur. Systems will also influence how quickly the stuff ups are corrected. They also overcome problems associated with key staff being on leave as their replacement will be able to operate efficiently.

Management This is the most important of the key factors as management decisions control all the other elements. The key here is for management to work towards making their people capable of running the organisation without them so the business will survive independent of any one person.

If you are an individual operator such as a real estate salesperson, think of yourself as a business and apply the same approach. The Americans love “buzz” words and they have a term for someone working as a small business inside someone else’s business. They refer to them as “intrapreneurs” rather than entrepreneurs. It still works.

In today’s world with many businesses unable to survive, it may seem too late to start down this road. Naturally the best time to have begun was when times were good but if this plan is not in place now then when will you begin?

Ross Cutten

Owner / Director

Noble Real Estate

WILL THE SECOND .25% INTEREST DEDUCTION REVIVE THE SALES MARKET?

WILL THE SECOND .25% INTEREST DEDUCTION REVIVE THE SALES MARKET?

7.12.11

The simple answer is no.

The current low demand from homebuyers compared to sellers is attributable more to a lack of confidence than the rate of interest.

Buyers fall for the trap of trying to pick the bottom of the market and they will fail, but it will not stop them trying.

The one area where the drop in interest rates may affect buyers is with investors.

We have only 2 properties vacant in our rent roll of over 500 managements which makes the vacancy factor less than .4%.

REIWA’s vacancy factor is 2.4% (average is 3-3.5%).

According to the forecasters that should lead to higher rents being charged next year, increasing returns.

We already have property with gross rentals above 5%, which is the level at which investors have bought in previous years.

So watch this space.

Ross Cutten

Owner / Director

Noble Real Estate