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Here's proof of how I predict real estate cycles…

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This is it!

Sounds dramatic, doesn't it?

…but this is my way of predicting when the time is right to accumulate a truck load of real estate assets.

It's so simple, you'll kick yourself for not knowing this and keeping a tab on it.

Look at this chart…

What do you see?

Remember when we were ranting and raving in 2009 that it was a sensational time to buy real estate, despite what everyone else was saying?

Hmmm… Look where interest rates were back then.

Below 6%.

It was a no brainer and we made a killing.

Did you?

Look at where interest rates are heading now, possibly back to around those levels.

Here's a principle that you should stick by.

Whenever interest rates are around the 6% mark, it's always a great time to accumulate real estate.

Now, look back at the chart.

I got started investing around 1995-1996. I had no idea back then how powerful this information was, I simply got lucky.

Back then, interest rates were around 11% and came crashing down to the 6% area.

Yes, the real estate market came back after a significant boom from 1987 – 1991.

The market went sideways from 1991 – 1996, without much happening with regards to growth… a great time to accumulate.

The sentiment for real estate was very negative.

But through that period of 1991-1996, rents were increasing as prices flat-lined. Then interest rates hit a cycle low around 1996 and real estate prices took off.

…They almost doubled in the next 4 years!

Interest rates went up to around 8%, slowing the market down. The real estate market took a breather, paused for a year or so and then continued it upwards movement in 2002 when rates again were at around 6%.

We had another mini-boom cycle from 2002 – early 2005 and things slowed down again. Can you see the pattern here?

Look, I know I'm making it really simple here, and sure, there are a few other factors to consider… But when interest rates are around the 6% mark, it's good news for real estate investors.

From what I see at the moment, the current period reminds me of more like 1995-1996 period. If I had my time again, I would have bought a lot more property during that period.

I'm not making that mistake twice.

Right now, it's a great window of opportunity for future profits. There's a time to accumulate real estate and now is the time.

Sure, I've said this in the past, you can make money regardless of the market if you're educated, proactive and smart.

…but, there are times when  you can get a double-whammy for your efforts and everything is easier.

Interestingly, I was listening to Charles Tarbey, the Century 21 real estate director and he said that in certain markets, an interesting and unique phenomena had been reached.

That is where rents had reached the point of repayments on the average home. Do you know what I'm talking about?

Those renting will start looking at buying because their monthly rental payments equal what the mortgage repayments would be.

All this due to interest rates coming back significantly and rents increasing on average 15-20% over the last 3 years.

I hope all this information makes sense to you.

You'll be looking back at this period in 4 years time and if you don't take advantage of it, you'll be kicking yourself.

Do whatever you have to do right now to put yourself in a position to profit from a potential significant shift in real estate prices.

Accumulate like crazy… NOW is YOUR time.

Signed with Success,

Jon Giaan

Knowledge Source

P.S. I got lucky in 1995-96. But I kind of made my own luck, because around that time I was educating myself and wanted to take my own destiny in my own hands. You make your own luck.

What do the police have to do with the real estate market?

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I reckon investors (the real estate kind) are feeling a bit like this…

You know the song lyrics…

“Too much information running through my brain. Too much information driving me insane.”

The lyrics are from a band called, The Police and sung by the uber-cool baby boomer extraordinaire, Sting.

What information am l taking about?

Well, anything to do with property investing…

One reporter talks about he real estate markets falling by an average of 5% the others talk about increasing by 2%.

Who do you believe and what do you make of all this noise…?

Here's an interesting charts that might help… and give you a bit of a spur on as well.

Ohhh interesting.

Do you see what I see…? (hmmm, another song lyric)

A significant turn around from a downward trend.

The chart is the RP Data-Rismark Hedonic Index, which reprices a portfolio of 5 million homes using all historical sales and the incoming flow of approximately 1,500 new sales that RP Data collects each day…

It's about as realtime and as close as you can get to the “current market.”

Here is what it reports…

A 1.8% increase in Australian capital city dwelling values since the end of May (refer to the blue line the chart below) to July 16.

Dwelling values in Melbourne (black line) and Sydney (red line) have risen more sharply, with capital gains of 2.8% and 2.1%, respectively.

Hang on a second… Melbourne increase by 2.8%?

…everything that is reported in the papers is all about doom and gloom, especially in the Melbourne market?

Whether you believe this or not is up to you.

Whether you want to invest using data, research and empirical or just a gut feeling is up to you…

The fact is that the RP Data-Rismark Hedonic Index is a daily index, which is published by both the ASX and the RBA (in its monthly chart pack).

That's got to be worth something, don't you think?

So what happened in May that saw a change in direction on this index?

…any thoughts? Curious to know ?

RBA Interest-Rate Cut.

So maybe… just maybe the “cost of money” getting cheaper is starting to take effect and are we seeing the early days of broader real estate recovery?

Despite all this, I can guarantee you one thing and that is that you will not see a headline on the front page that says “Housing figures show dramatic recovery due to latest RBA interest rate cuts with more gains to follow…”

In fact the opposite seems to be apparent.

Doom-spruiker-in-chief, Steve Keen, still gets quoted by respectable media despite consistently misleading the public and mis-predicting the housing market. In 2008 he was regularly referenced confidently calling for a 40% fall in house prices (and double-digit unemployment).

You know my thoughts on Keen's predictions… We are on public record saying the complete opposite way back then… In fact l was the only educational investment company that ran public events that gave a different perspective…

We where right, Steven was wrong….

Interestingly, he is still sticking to the 40% decrease in the real estate market. He is just now saying it's going to happen over a 10 year period… Originally it was 3 years.

…that's what economists do when they get predictions wrong, they often tell you there were too early and push out the timeframe. Who's going to remember in 10 years what Steven Keen said today?

Here is what really happened back then…

Prices rose by 13% in 2009 and 5% in 2010, in some city even more…

For what it is worth, Australian home values are currently around 15% above the lows they touched in December 2008.

The RBA then stopped the real estate market dead in its track with several interest rate increases and then thought, “Oh shit, what have we done? Cut… Cut… Cut…!”

Now they had good reason to cut interest rates dramatically. Unemployment in 2008 went to 8%, we've just had one of the greatest economic calamities of a generation and everyone was petrified about the oncoming potential of a global depression.

So what can you make of all this?

I'm no economist (thank god for that) but we may have seen the bottom of the broader real estate market and a recovery on the way.

One thing for sure is that we will see further rate cuts and the cost of funding getting cheaper. This means happy days are ahead if you know and understand how to invest in a low-interest rate environment.

I can tell you one thing. Saving and having money in the bank is probably the worst strategy right now… But that's what most Australians are doing.

Keep this quiet for now, this can be our little secret… It will be 12-24 months before the media start reporting a turn for the better.

But for now, take advantage the real estate market. It is a BUY.

Look, I have to say this because I don't want you to just go out and buy anything. At any point in time, about 5% of the available stock on market is suitable for real estate investors. There are a lot of dogs out there and unfortunately 80% of investors wouldn't know the difference.

The time is right to get some education, do your research, stop believing what the press has to say. They're always typically late, wrong and biased to bad news anyway.

Take your future in your own hands and do something… Now!

Signed with Success,

Jon Giaan
Knowledge Source

P.S. I'm sure I'll get some criticism about my views here. I base them on the research that I personally do and the investments I make in the market realtime. I got a lot of heat in 2008-2009. I went out and bought real estate, most didn't. I'm way ahead.

Bad news for all investors!

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I bet you're confused about what's happening in the economy right now.

I certainly am.

Reading all the headlines, you'd think we're on the cusp of a property crash and diving into another global crisis via a double-dip recession. Run for the hills!!

Add an election to the mix and you've got a recipe for massive procrastination.

So what can we make of it all?

Let's see if I can help…

I think the Reserve Bank of Australia went way over the top with its interest rate hikes. We went from a 3% cash rate to 4.5% in just 6 months.

This was a massive 50% increase and the most aggressive in the western world.

So why did Glen go so hard?

He had eyes only for the property market and the only way he could stop it was by using interest rates as his evil weapon against his perceived property boom.

He's thinking was… Slow down the property boom and we've got a chance at improving the housing affordability of everyday Australians.

Since his crusade 6 months ago, he succeeded in putting a pause on property prices, but only after 6 months of solid real estate gains in most markets.

…and this week, we receive evidence that is he has also killed affordability with the following headline, “New Home-Starts Fall a Further 5.2% in June”

Some uneducated investors see those type of headlines and think we've got a serious problem.

Here's what I think…

The down-turn in new home sales is by and large the product of the end of the government stimulus for first home buyers and the increase of interest rates, which has led to the following problems…

The lack of available land… Chronic lack of development finance leading to a lack of development activity… Council planning regulations taking far too long to release projects… Infrastructure delays in new development areas.

All of this will mean one thing.

That the housing shortage will continue to increase and prices will continue to push upwards… and the people most disadvantaged from this are the ones that the RBA boss, Glen Stevens is trying to help… those who are trying to buy their first home.

So all the shenanigans going on right now will push the expanding population into the rental market.

What does that mean?

Rents will significantly go up in the next 12-24 months.

Great if you're a property investor, not much good if you're a tenant.

So what I'm saying here is that there will be no property crash – full stop.

What we'll see over the next several years is single-digit growth across many markets and if you're smart and savvy within certain markets, you'll be able to achieve much better than that.

You see, when most of the stats are quoted, they're typically an average of all markets. So if we see 6% growth on average, it would not be unusual to have certain areas within property that have grown by 25%…

On the flip-side, some areas may fall by 10%.

That's why I think you need to stay on top of your game, stay invested in areas that are likely to grow faster than others.

…research, research, research…

On another subject, and that is clearance rates, I often have a lot of fun with this sort of data… But here's something you probably don't know.

The clearance rates that the average investor seems to hang off every Monday morning reports only 20% of property transaction nationally.

That's right, just 20%.

So does it really mean anything?

N.O.

Here's something else that you need to know – all it really shows is people selling and buying.

12 months ago, we might have had a clearance rate of 55% with 400 properties on the market. In the current climate, we've got clearance rates of 67% with 900 properties on the market.

All this stuff is just noise to fill up newspapers and get your attention.

The macro picture (long term) is still so strong for property in this country that you'll kick yourself if you sit on the fence again.

Interestingly, I was listening to professor Keen the other day and he is still ranting and raving about the 40% drop in real estate. The guy doesn't give up.

He said that his initial prediction of a 40% drop was over a 10-15 year period… Not 2 years after the GFC hit. He was misquoted.

He also said that the fall would be from peak to trough.

What that means is, let's say real estate has gone up 30% in the last 3 years since his prediction and it falls down by 30%, then Mr. Keen is right… Because real estate has fallen overall by 30% and it's created a new peak and trough. (Economists are never wrong – they'll find a way).

Confused, aren't you?

It's just more shenanigans by economists who are perhaps too close to the data for their own good.

My last point for today… What about a double-dip recession?

Here's all I have to say about that…

It seems to me that everybody has almost guaranteed themselves that this is going to happen. From my experience, when the mainstream press and the man in the street are talking about a double-dip recession, then it's likely not to happen and in fact go the other way.

Now of course in Australia, we never went into recession. And considering that I don't think the global economies are going to go into a double-dip recession – I think it puts us in a good position going forward.

Just think contrarian (always go the opposite direction of the herd – most people are generally wrong).

They're my thoughts.

Probably needs to be said, I failed high school, never did economics, wasn't very good with maths, have absolutely no financial planning background – so everything I say here is basically my opinion based on my results (8-figure real estate portfolio, 7-figure stock market portfolio, 8-figure business).

…so please, before investing see a certified financial planner or follow the smart money.

That's all for today.

Signed with Success,

Jon Giaan
Knowledge Source

P.S. So what do you think? Jump on your soapbox and let the rest of the Knowledge Source people hear your views below.

Pay too much for property… and still laugh!

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There's lots of talk of a bubble in real estate prices in all sorts of media at the moment, isn't there?

…and I think it's seriously detrimental to your wealth creation plans if you let the journalists influence you into not taking any action.

Let me ask you a question…

Will property be more expensive in 5 years time?

I'd say that if you bought well located properties in most of the major cities, you're pretty safe in regards to capital appreciation.

I'm always amused when I see people in the last stage of negotiation walk away from the deal because they might be $2,000 apart.

Does it really matter if you paid too much for your investment property?

Let me tell you a couple of real life scenarios.

About 7 years ago, a friend of mine asked me to come along to an auction, more from a point of view of moral support.

He was looking at purchasing a property as his principle place of residence.

The suburb was Ivanhoe, which is about 12kms from the Melbourne CBD (a quality blue-ribbon area).

I asked him what his limit was, and he said he was going to go up to $700,000 and not a cent more.

I'm always curious as to why people pick limits that are round numbers.

Anyway, the auction began in ernest and my friend, nervous as all hell got involved around the $675,000 mark.

Three bidders at that stage were competing for the property and the price quickly got to $695,000.

…Bidding slowed, and now there were only 2 left.

My friend and another couple.

I was interested at that point to see if my mate would stick to his original plan of only going up to $700k.

The bids were now down to $1,000 bids…

It was obvious to me that the auction was reaching its completion, and then something unexpected happened.

The young couple put in a $10,000 bid.

Hmmmmm… That certainly put the cat among the pigeons.

My friend turned to me with sweat consuming his brow and said, “Let them have it…”

It seemed to me that he was a beaten man. In the auction world, a big $10,000 bid like that is called a knock-out punch.

We're now at $705,000, and remember, he was looking at this property from a point of view of a principle place of residence… So I suspect there was a little bit more emption attached to this than a run of the mill investment property.

He consults his wife of course, and they agree that they're over their limit and maybe they should just give up.

He turns to me and for the first time asks me what I think.

I asked him how long he was going to keep the house…

He said, “Probably 10… 20 years.”

I then told him if he really wanted it, and he loved the area, then what's the big deal if he paid $20k, $30k, even $40k more?

This seemed to reignite his enthusiasm.

I told him to put in a $500 bid.

Here's why…

When someone tries to knock you out with a big knock out punch, the last thing they want to see is you still standing with a smile on your face.

It's very cheeky, and an act of confidence when you respond back with a tiny bid after his massive attempt to knock you out.

The young couple came back with what they thought was the right thing to do, and that was a $500 bid.

My friend looked at me and said, “What now?”

…I said, make a $10,000 bid.

You should have seen his face.

I can only imagine the thoughts running through his head. Here we are at $716,000 with his previous flimsy limit of $700,000 and I've asked him to up the ante with a $10,000 bid.

Thinking… Thinking…. Thinking… and the auctioneer counting it down, I reminded him that this was a long term investment and in 10 years time it'll be so insignificant that he'll kick himself if he lost this auction for the sake of just $10,000 (or thereabouts).

With great doubt and trepidation he shouted out, “Seven twenty six!!”

You could see, even from our distance, the young couple's face turn white.

They had nothing left in the tank and my friend's actions proved to them that they would have to keep going and probably pay $30 or $40,000 more if they wanted the property.

The auctioneer counted it down and my friend had himself a brand-new home.

As I mentioned earlier, this was 7 years ago.

The reason why I tell you this story is two-fold.

He recently got a valuation on the property for $1.4 million, and to think he could have missed out on this deal for a mere $20 or $30,000 dollars.

Ok, he could have bought something else and maybe have made the same amount of money, but the reality is this was a well-located house in a better than average street in the suburb.

The second reason I'm telling you this story is that you can pay too much for real estate and still make a bundle of money if you have a long term buy and hold philosophy.

That's why I find all of this current noise about property bubbles and whether it's a good time to buy real estate really amusing.

You ask any pro who has been in the market for a minimum of 10 years about when a good to buy is.

…and he'll simply tell you, “Whenever you can.”

So if you're in a position to invest in real estate right now, then it's a good time to buy.

Think about it, an extra $20,000 is around $29 per week in extra mortgage payments (based on 7% interest rates).

Now I'm not saying to you that you should go crazy and simply pay the asking price on any invest property, but if you like it and its well-located, then in 10 years time, think about… You're not going to be upset that you paid $20,000 more.

Ok, when I say, “well located” – here's what I mean…

If you purchase anything in a major city within a 15km radius and I can guarantee you that even if you pay 5-10% more than the market value today, in 10 years time you'll be a clear winner.

Sure, everybody's circumstances are different and I understand that sometimes there could be some issues with funding the extra $26 per week… However, it's an investment in yours and your family's future.

So the moral of this story is don't be too concerned about what you're reading and hearing in the media.

It's all short-term perspectives.

The long-term reality is real estate will be more expensive in 10 years time.

..and what that simply means to you is the earlier you begin, the better it will be for you financially in the future.

Get out there and get serious.

Signed with Success,

Jon Giaan
Knowledge Source

P.S. Share your stories on our web site of how you paid more for property and sweated on it at the time… Only to find out that in time it was the best decision you ever made.

P.P.S. Or, tell me I've got it completely wrong, that you should always negotiate hard, follow your budget, have a clear valuation strategy, and that is the way to invest in real estate.