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Saturday Summary – the most interesting property investment articles I read this week

Each Saturday morning I like to share some of the interesting property investment and economic articles I’ve read during the week.  They’re all here in the one place for your easy reading.

Enjoy your weekend….and please forward to your friends by clicking a social link button on the left.

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Will the rate cuts hurt or help our property investment markets?

While many property investors are happy about the recent fall in interest rates Commsec chief economist Craig James asks the insightful question: in the current environment a rate cut helps or hurts the economy.

The Reserve Bank certainly had the luxury of being able to cut rates. The budget deficit is being wound back so fiscal policy is contractionary.

At the same time inflation is under control and key sectors of the economy are finding it tough such as retailing and manufacturing. So it acted to insulate our economy from weakness abroad.

But while rate cuts have in the past acted to stimulate activity, the impact on the economy today is more ambiguous.

While rate cuts help borrowers, they hurt savers.

The number of savers has soared and currently deposits are creeping up to be almost neck and neck with loans. Deposits represent around 90 per cent of loans outstanding, well up from 75 per cent just five years ago.

Further only a third of households benefit from a rate cut with a third of families renting while a third of families fully own their homes. The non-home buying public tend to be savers rather than borrowers. So a rate cut will hurt all the families living off interest income.

The $64 question is confidence.

If people don’t have the confidence to spend and instead continue to save and pay off home loans at a faster rate, then the rate cut will have no impact on activity. It is also important to note that it is the level of interest rates that does the hard lifting work in the economy, not the change in rates. Interest rates are already below longer-term averages.

And judging by what has happened in previous months, home borrowers are more likely to respond to a rate cut by paying off their home loan at a faster rate, rather than going on a spending spree.

There is a perception that consumers aren’t spending, and that a rate cut could get people shopping again in the lead up to Christmas. But the latest data shows that Aussie consumers are indeed spending, and at a pace in line with long-term averages.

Rather people are spending differently
Travelling domestically and overseas more often and buying goods on-line. If retailers want to lift sales, they need to focus on the entire experience of sales and service.

By the way…CommSec is penciling in another rate cut for November.

Read the full article here …

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Renovating for a profit in any market

Another great Real Estate Talk show  produced by Kevin Turner. If you don’t already subscribe to this excellent weekly Internet based radio show.

This week he has a heap of great guests:

You should definitely subscribe to this weekly audio program. Click Here It’s free and you can listen on the go on your smartphone, iPad etc.

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 6 Rules to make sure you become wealthy

Regular Property Update blogger Pete Wargent recently wrote an excellent piece on the psychology of wealth creation.

1 – Increasing your self-esteem
Why is self-esteem relevant to wealth creation? The reason is because if your self-esteem is low and you then achieve a level of success that exceeds what you believe you are worth, you will unconsciously sabotage your success.

2 –  It pays to invest for the long term
Too many of us devise plans to make ourselves a little better off in the short term, but have no cogent plan for building wealth over the long term. True wealth and fortunes are built slowly but surely.

Following the principle and power of compound growth is the key to building wealth. If you can add some leverage – the use of other people’s time and other people’s money – you can join the ranks of the super-wealthy over time.

3 – Study and counsel with wise men
If you want to be successful, learn from successful people. Find someone who has achieved what you want to achieve. Study and follow their methods.

You may even be able to learn from some of their mistakes and reach your goals even more quickly and completely than they did themselves. This is a powerful tool known as ‘modelling’. I consciously use it every day.

4 – Paying yourself first
What do most of us do? Pay our mortgage, pay our bills, pay our credit cards and pay for other essentials. Then we look to see what is left over at the end of the month.

We need to see things another way. Invest a decent sum safely away first and then worry about the other payments thereafter. It sounds arrogant. It works.

5 – Controlling expenditure
Financial freedom is about having passive income – which flows to you regardless of whether you work – that is greater than your outgoings. There are two variables in that equation that can be adjusted to achieve the goal.

One is to increase the passive income figure (through investment). The other is reducing the outgoings (through thrift).

Where are the holes in your financial foundations? How can you plug the gaps?

6 – Taking action
It’s all very well studying these first five steps, but what really counts is taking massive and consistent action and simply never, ever giving up.

What is holding you back from starting today? A fear of failure? A fear of losing money? You’re “doing OK” without investing? When will you start to take action? Next month, next year, next decade?

You need to dare to be different to achieve wealth. Procrastination is the killer of all opportunity. Take action today!

 Read this excellent blog here …

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 Property Investors – protect yourself

YOU’VE finally found the ideal investment property, mortgaged yourself to the hilt and secured a good tenant – but it’s not quite time to sit back.

Karina Barrymore warns not to forget to protect your new investment both physically and financially.

She explains that with a mix of insurance, good management and maintenance, you can almost wrap your property in cotton wool and ensure you have a contingency plan or compensation for almost every bad situation.

Just how much cotton wool you need is up to you but for most investors, off-loading a bit of risk is always worthwhile.

 She explains what you could do in the full article here …

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A Property Investor’s Guide to Famous Last Words

In a recent blog on Motley Fool Morgan Housel explained one of his favourite quotes comes from Nassim Taleb author of Black Swan:People focus on role models; it is more effective to find antimodels — people you don’t want to resemble when you grow up.”

He makes a good point – it pays to learn from people’s mistakes as much as from their successes.

Here are some “famous last words”:

“I thought I was getting guaranteed high returns.”
Everyone wants that, so no one will get it. Any legitimately “guaranteed” investment will attract so much money that returns will be pushed down to zero — and negative after inflation. You aren’t entitled to anything you’re not willing to pay for.

“I want to get in now before I miss more of the upside.”
One of the fastest roads to poor results. Buy businesses, not regrets.

“We’ve come up with a new way to mitigate risk.”
A line invariably muttered before meltdowns, collapses, panics, and depressions. Overconfidence is a good alternative definition for “risk”.

“We seek to enhance returns with leverage.”
Alas, that leverage is seeking to enhance your humility. And it usually wins.

“It looked like easy money.”
If it looked easy to you, it looked easy to millions of other investors who probably bought before you did and will get out before you do. The easier it feels, the harder it will end.

“There’s very little downside risk.”
Rule of thumb: Take what you think is your maximum downside risk and multiply it by five. Now you’re closer to reality.

“This was a one-in-a-million event.”
Maybe it was. Or maybe you severely miscalculated the odds. Reality is almost always the latter.

“Analysts are predicting high growth for years to come.”
People wouldn’t take these predictions seriously if they knew how bad most analysts’ track records are — and how minimal the punishment for being wrong is.

“How can you argue with a bull market that’s been going on for 10 years?”
Because all that tells us it that we’re 10 years closer to the end of it than we were when it started.

“There’s too much uncertainty in the world to be investing right now.”
As close as it gets to ringing an opportunity bell at the bottom of a bear market.

“I’m going to wait on the sidelines until there’s more clarity.”
The easiest way to ensure you’ll miss the bulk of bull markets.

“My brother-in-law has made a killing in these stocks. It’s time I jump in.”
As Charlie Munger says: “Someone will always be getting richer faster than you. This is not a tragedy.” What is tragic is taking risks you don’t understand and buying assets at the top of bubbles only because you view investing as a competition with others, instead of a way to secure your own financial well-being.

“It’s different this time.”
A cliche among famous last words, but easily the most important. Risk will never be eliminated, growth will never be limitless, and markets are never fully efficient. When it comes to big, basic principles of investing, it’s never different this time. This truth explains the majority of investment blunders.

Read the rest of this great article at Motley Fool

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Some stats About the Nations wealth in the U.S. and in the world:

Here are a few stats about wealth in the world and the USA

  • There are 2,160 billionaires in the world.
  • The combined wealth of these billionaires is $6.2 trillion.
  • There are 187,380 people in the world worth at least $30 million.
  • The combined wealth of the people worth $30 million or more is $25.8 trillion.
  • Eighteen of the 40 richest people in the world are from the United States.
  • The net worth of the median American family in 2010 was $77,300.
  • The net worth of the median American family in 2007 was $126,400. The majority of the decline in net worth between 2007 and 2010 was due to the crash in housing prices.
  • The top 10 percent of American households had an average income of $349,000 in 2010.
  • The average net worth of these top 10 percent households was $2.9 million

Do any of these figures surprise you?

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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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