"Nice one how does one no so much about their friends business. Realistically we all have one friend that blab everything but most are closed books and keep things pretty close to there chest. I just find it hard to believe your friends would take you in such close confidence and disclose so much. A lot lately seems to be friends in trouble or a mate, no provable real stories just someone I know. Then if it it is true really what type of business or businessman runs anything where1% will sink them. "
I have other friends and collegues who as you say keep these details very close to their chests, one collegue implies that he has several and is of the breed that insists that property is the best investment and you can't lose with it. I overheard him buying another one late last year. I like to listen to all investors to gain a reading on what I think is going on.
The other two mates of mine who have the larger number of properties will likely be fine, if rates do not rise much more. They are both pretty much at the stage where the properties they have cost them almost nothing using interest only loans. If we have only one or two more rate rises they can quite happily cough up the extra interest and rents may well rise to accommodate some of that cost.
If we get another 75 to 100bp rise then they will not be able to service the debt, unless they get a second job or possibly ask their spouses get a second job. They have been in and out of fixed interest loans over the years but woudl be too expensive to fix right now.
So the whole plan is based on capital gain, if that is not looking like there is much left in that tank over the next while, the investment will start to look pretty tedious, but would take a period of years for investors to get the message and get bored of it IMO. If this scenario eventuates, then the sale of these properties by some of these types of investors could be slow and graceful or if panic sets in, triggered by an event not anticipated, like a mega high aussie dollar encouraging overseas investors to take profit in a short space of time, the exit for the doors by some of the market might be a less graceful.
I'm not saying that these guys are in trouble, just that they might be, due to the amount of cash under their control that they do not own. My stock holdings have been subject to a lot more risk than these property investments over the last few years, and are still at great risk. I have not borrowed any money but the risk comes with the much more rapid movements of the equity markets.
Regarding ethics, I'm sure some of my investments in for eg FMG and WSA where they dig up the ground a leave a big hole and possibly sell to China where the government may have different standards about human rights can be considered unethical, just as helping to inflate the property bubble can be said to do the same thing. It could be said that the high price of property has caused relationship damage as couples argue over financial issues created by having to pay double for a place to live compared with a relatively short time ago.
I have put off buying a house for 8 years and invested in equities instead, causing a lot of friction with my missus despite going reasonably well with those. Time is running out for me and I will have to buy fairly soon with a growing family needing more space. But even my missus is seeing that the many properties that she is looking at are not selling and is aware of the risk of price retracement.
Many young couples who sit on the tollways in Sydney in 20km/h average speed mobile carparks are paying the price as well. If prices were at the long term average multiple, many could afford to buy a house closer to their workplace.
The collective stress and fear of the 'homeowners' who's bank actually owns their home, who wait in trepidation for the next interest rate rise is a result of this overpriced market. I don't think these things are the investors fault, it is the regulators and government who are too gutless to see the real problem and fix it. I think the government needs to get rid of negative gearing on existing homes, stop taking the cheap option and importing skills by filling up cities with cashed up skilled immigrants where the infrastructure does not exist to house them, spend money not on pink batts and overpriced fiber but on education and developing industries to skill the existing people in Australia and stop being so obsessed with growth. There is only so much the arable land in Australia can support.
The government probably realises that by overfilling cities, the property bubble will not pop under their watch. IMO, the bubble is just getting bigger as a result and the governments will be too scared to do anything to pop it, which means if it does go, it might be big enough to take the banks with it.
