MAKING MONEY OUT OF THE FINANCIAL CRISIS

What's that you say? How can anyone make money at the moment?

Easy really, the two best drivers of wealth are still property and the sharemarket. Both of these are down at the moment, although property is not down very much apart from property owned by financially distressed vendors.

Let's look at PROPERTY first - There is good buying pressure on lower priced homes in the first home buyers are of the market, so let's avoid that area. If you look around carefully and talk to as many real estate agents as possible, then you will find homes in the bracket just above that level. (Agents will chase deals for cashed up buyers at present) For example if the entry level in your area is $350,000 then look at homes in the $500,000 bracket. You should be able to pick up one of these for around $430,000 if you are prepared to wait and negotiate hard. That will give you a much better buy in the long run for that extra $80,000.

You must buy with your head using all of the logical measures rather that just picking a home with colours that you like. A house needs to be a sound building displaying some worthwhile architectural features that make it stand out, and importantly it must be well located. Paint colour, age, and other superficial characteristics will in the long run have little bearing on what you can achieve with a house. In fact I always consider a house or property that is a bit run down as an advantage as less people will be interested thus offering a better buy. Really paint is cheap. This market has brought prices back to a realistic level and ensured that they don't race off leaving everyone behind. You do need to take a long term view, and with the current interest rates you can afford to hold a property that brings in reasonable rent. Yields should be in the vicinity of 5% or more. If I buy for $520,000 then I look for $520 per week or close to that. Interest rates will shortly be around 5% so a positively geared property is not out of the question if you have a small deposit.

PROFITS - give yourself at least 5 years, but I suspect that you may earn an easy $100,000 out of a $500,000 house over that time as well as taking some tax benefits along the way, and you will only be taxed on half of the capital gain as long as you hold for more than 12 months.

Now lets look at the SHAREMARKET - This market has taken an absolute hammering over the last 18 months, in particular the latter half of 2008 when many were predicting the end of the world as we know it. and truly it was the end of the world for many banks and related financial concerns. We now have some stability in this market, banks are again lending, Obama is promising to fix the ills of the system and has brought on many good people who appear capable of doing that given time, and the more normal market conditions means that investors will again look at the fundamentals of the companies rather that just looking for the nearest exit to run through. Many of these companies will receive solid upgrades once we realise that they still have good earning capacity. Look for CASH earnings, and not just revaluations of assets to drive income. Values of warehouses, breweries, retail property etc. can go up or down, but a company with sound cash earnings can ride out storms and fluctuations in the economy. I can't and won't tell you what companies to invest in, but ask yourself if people will still need to eat, have a beer, drive a car (and what sort of a car) go to the movies etc. Regardless of the situation people will still need necessities, but perhaps champagne and caviar will be off the menu for a while.

Think carefully about the industry that you are putting money into, the company, the people running the company, and the strength of the company. If you are unsure ask your stockbroker for advice, but always be involved in the decision yourself. Never invest in any company that you don't understand.

Invest with intelligence and win in this credit crisis.....

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