What is the real estate monster?

I'll explain shortly.

But the press is at it again with all of their opinions about the real estate market currently in a boom.

I talk to lots of people on a daily basis and many are hypnotised by the press, believing that now is not the right time to get into real estate – because prices are too high.

I'll deal with whether it is or isn't shortly…

It's hard to sometimes go against the overwhelming tide of opinion, but that's what you have to do in order to become successful.

The masses are always wrong…. So this is the time to stand tall and profit like crazy. If you're willing to stand out from the crowd and go in the opposite direction.

There is a real estate monster out there, and let me tell you what's not. It's not all the B.S. and rubbish you hear about from wannabe economists, cleverly disguised as journo's.

In fact, those guys are trying to cut down to size this real monster that was created about two years ago and will continue to grow for maybe even decades.

You're curious now as to what I'm talking about…

Here's how the real estate monster was created…

First, we had a serious economic catastrophe. That is well known as the GFC. The government had to react somehow, all the smart guys in the world were literally printing money and throwing it at the problem – so why should we have been any different?

Amongst many of the resolutions for underpinning our economy was the boost to the first home-owners grant.

The government knew well in advance that when they released the first home-owner's boost there was already a real estate supply problem.

The only outcome when you increase demand and know that you can't possibly supply, the price of that asset will go up. That's exactly what happened, didn't it?

I saw this early last year, and we've been screaming it out loud ever since. Some listened and profited, others sat on the fence and missed out.

…and there are people who sent me long-winded emails on how property was going to halve, the sky was going to fall down and we should all fill our pantries up with canned food for the coming depression… Seriously.

The government created this monster and fed it on a diet of free money.

So the boys in parliament have got a problem now, don't they?

After putting all these people into homes for the first time, and knowing full well that the prices are likely to inflate – how do they go back now and unleash supply (which will deflate prices)?

There'd be blood on the street if this was happen and every new first home-owner would be a “lamb to the slaughter.”

Tony Abbott, who is probably not even across this basic economic analysis should be laughing right now if K-Rudd does the unthinkable and increase supply.

The housing market is now a political hot potato.

But to just increase supply is no easy matter. It doesn't happen overnight and it could take 2-3 years before we can get it right.

As an investor, you should know this and I'm doing what I can to put my perspective on it.

As people talk down the property market, I and others continue to make easy money, month in month out, simply because we have portfolios that just increase in value whilst we sleep.

The money you make when you sleep is the easiest money you'll ever make in your life.

Now let's talk about the future… The housing market will be facing some real pressure all the way to 2050. Yeah, I know that's a long time away but it's a trend and a timeframe that you have to consider when you're a long term investor.

The government is pushing for a population of 36 million by then.

…and by 2030, if this problem is not dealt with, the undersupply of houses is reported that it could reach a 1.5 million shortfall.

That can only mean one thing… Prices will go up, millionaires will be made. Are you in or out?

Now 2030 is a little bit more realistic for most of us, that's a good 20-year cycle, and you'd be foolish to sweep this information under the carpet and miss out on potentially 3 upwards cycles leading into 2030.

What I mean by 3 upward cycles is property doubling in value every 7 years from now till 2030.

Most people's thinking is too short term when it comes to property. I learnt this several years ago, that you have to think in cycles when it comes to property. I've been involved in only 2 property cycles and literally have made millions.

Back to the problem…

The government has a clear agenda to increase the population, whilst the state governments are scratching their heads as to where these people will live.

It wasn't long ago that Bob Carr, the former premier of NSW was saying that Sydney is full and literally making it impossible for future planning and growth.

There's a stock market saying called divergence… Usually when this happens we get a significant trend either way.

Here, all fact considered, the trend is towards the upside.

So what do you do?

Well, you can simply do nothing, sit on the fence and just take my view as another opinion – nothing more than that… Or, you can let the Federal and the State governments battle it out and buy as much property as you can in the next 5 years and take advantage of this unique time in Australian real estate history… and become wealthy beyond your dreams.

I know which road I'll be taking… Do you?

At this point, I would typically get excuses… Don't have a deposit, can't get a bank loan, bad credit, blah, blah, blah…

I can solve all that for you within 4 hours tops. How?

Just one of the presentations at our Cash Flow For Life conference deals with these problems and solves them. If they are your excuses, then you need to be at that event, don't you?

Anyway, I digress.

Have your say below, I'm interested in your opinion.

Signed with Success,

Jon Giaan
Knowledge Source

P.S. The real estate monster is real, and it can be your friend if you know how to tame it and use it to do good instead of evil.

Crazy way to get your attention.

But the subject line to this e-mail is what a highly respected professor of economics reported to the media in 2009.

The name of the Professor is Stephen Keen and he certainly made a big name for himself by predicting that the extreme property market was going to fall by 40% last year.

Stephen was so certain that he went public and told everyone that he was going to sell his complete real estate portfolio, including one property in Surrey Hills, Sydney.

He sold the property for $526,000…

I'm not so sure whether it was a property that he lived in, I'm guessing it was probably an investment property.

Now having a quick look at the growth of Surrey Hills in 2009 of 8-10%, and I see that Professor Keen probably cost himself about $50,000.

To be fair to Professor Keen, he is no dummy. He did predict the global financial crisis and for a large part he got that absolutely spot-on.

So you're probably wondering how he got the prediction so wrong when it comes to the Sydney property market.

Well a couple of journos asked him that question and this is what he said…

“I didn't know the government was going to be stupid enough to increase the first home buyers boost.”

Okay fair point, the increased grant has certainly inflated house prices but it would be a gross exaggeration to say that this prevents a decline in house prices of 40%.

So where did Mr Keen go wrong?

For a start, he neglected the supply side of the market and the growing shortage of dwellings putting an upward pressure on prices.

Add to that 40 year lows in terms of interest rates and a steady flow of migration plus a few other factors …and what we saw was not a disastrous real estate market but one that actually outperformed all other asset classes significantly.

I think some folks are still oblivious to how big the 2009 real estate market really was.

His latest figures…

The five suburbs that experienced the highest house price growth in 2009.

Melbourne: East Melbourne 58.9%

Sydney: Sylvania Waters 53.8%

Perth: Churchlands 43.8%

Darwin: Fannie Bay 39.4%

Sydney: Taren Points 38.4%

These numbers are huge, anybody who is smart enough to understand the fundamentals that underpin property investing would have made a lot of money last year as an investor.

But what about this year?

Surely it can't be the same as last year and the market will have to correct itself..?

Well this year it is a different kettle of fish and some markets are likely to go down rather than up. However, there will be strong areas to invest in and these may surprise you.

You can find out exactly what you can expect from the 2010 real estate market by attending a full-day training event with our resident real estate expert, Dymphna Boholt.

Dymphna predicted the 2009 property boom and had you followed her advice you could be sitting on a substantial capital gain. In most cases that gain would equate to two years salary.

Interestingly, the two cities that she predicted would have the highest growth in 2009 were Melbourne and Sydney. The latest figures just released show Melbourne's growth was at a whopping 18.5% and Sydney at a healthy 12.3%.

I'm sure you want to know what her views are and how each city will perform in 2010. She will reveal all this with valuable information at her live events.

But be warned, Dymphna's events typically book out fast once the word gets out.

So here's the deal, as a subscriber to Knowledge Source we've set aside 150 complimentary tickets. That means free for you and you can claim one of those right now by going to be following webpage.

http://dymphnaboholtlive.com

Yep! That's right.

I was shocked when I saw this chart.

It stopped me dead in my tracks and got me thinking seriously about where we're at right now in the real estate cycle.

Now, to get the impact of this, think back several years ago when the press would absolutely hammer this like there's no tomorrow.

The affordability rate of real estate as a percentage of the average income.

I don't know if you remember, but when the figure was getting up to 35%, they were calling the top of the market. So what that means is that it takes 35% of the average income to service an average mortgage.

The theory being that when it pushes higher than 40%, people simply can't afford to spend money servicing a mortgage.

Now that to me makes a lot of sense and it does have an impact on when the market is likely to cool off in certain segments.

That also explains why at the height of booms, the top-end of the market seems to kick o in a big way and completely ignore the basic affordability issues.

Of course the guys at the top end are making more, so they can spend more. In some cases the percentage can be relative – the figures just change.

OK, enough of the basic… That's what they are. If you don't understand afforability in respect to investing, now is a good time to get clear on it.

Here's why…

This is what bowled me over.

Guess what the affordability is, let's say for a place like Sydney…

At it's peak, it was pushing 40%… (Don't worry, most other states were pretty similar)

…Now, it's in the low 20's.

Do you know what that means?

No, I'm really serious – are you clear as to what that represents?

Here's what it means… The average person can afford to spend more money and service a higher debt than what they're currently paying for.

The bridge between the low-20's and the high-30's with respect to affordability is perhaps the biggest profit opportunity that I've seen in real estate for 15 year. The last time I saw such a differential in numbers was 1994.

That's when I bought my second-ever real estate property for $94,000 in Brunswick, Melbourne. The price of that property stayed steady for a year, but by 1998 it was worth $215,000.

Timing and understanding the science behind property investing, and let me tell you that there is a science, can be very profitable.

So, where did I see the chart?

Well, I was at the back of the room at one of Dymphna Boholt's recent seminars.

Depending on where you live in Australia, you still have time to get advanced real estate education from a leading expert for virtually nothing.

Affordability is going to go back into the high 30's… and that will be the end of this property cycle. Right now you've got no excuse to sit on the fence and not take your fair share out of the next upward property cycle.